China Plans Giant Bond Issue to Pump Funds Into Bank Sector

China unveiled plans Saturday to float a $32.5-billion domestic bond issue in an effort to recapitalize its ailing banks and avert the type of financial crisis that has stricken much of Asia.

The money would be used to resuscitate China’s four giant state-owned commercial banks, which are technically insolvent because of approximately $200 billion in nonperforming loans, most made to state-owned enterprises.

Although the bond issue has been mentioned privately for weeks by Chinese economic planners, its announced size surpassed the expectations of most foreign analysts. It would be a major step toward buttressing the banking system, which a World Bank report last year called the “soft underbelly” of China’s economy.

“The bond issue is very necessary to raise the credibility of state-owned commercial banks and their ability to compete in international financial markets,” the Standing Committee of the National People’s Congress, which approved the issue, said in a statement issued Saturday.

In January, China’s central bank chief, Dai Xianglong, said that more than 20% of state bank loans were nonperforming and that 5% to 6% of those loans were unrecoverable.