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China's central bank uses foreign exchange reserves to boost Silk Road initiatives

China's central bank has used its foreign exchange reserves to inject at least US$62 billion in capital into three "policy banks" to support the country's 'belt and road' economic plan, according to Chinese business news site Caixin.22 Apr 2015

China Development Bank (CDB) will receive $32bn, and the Export-Import Bank of China (EXIM) $30bn. An unspecified amount has been injected into a third bank, the Agricultural Development Bank of China (ADBC), Caixin said, quoting "sources with knowledge of the matter".

The central bank will become the second-largest shareholder of the CDB and the largest shareholder of EXIM, Caixon said.

China's foreign exchange reserves have grown to $3.8 trillion, sources told Caixin. This supply of foreign capital will help the policy banks to support the belt and road initiatives, which cover the building of infrastructure across south and Southeast Asia, the Middle East, and through Central Asia to Europe to create demand for China’s industrial exports, Caixin said.

Beijing-based Helena Chen of Pinsent Masons, the law firm behind Out-Law.com, said: "This supply of foreign capital will provide long-term capital for CDB and EXIM banks, which isneeded for them to to support the belt and road plan. This is another piece of evidence indicating the rise of Chinese economic power in the international arena."

Policy banks were established in 1993 to lend on central government orders and receive preferential treatment such as tax breaks. The 'Decision of the State Council on Reform of the Financial System' said that policy banks were set up to separate 'policy' and 'commercial' finance, and that they would not compete with commercial financial institutions.

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