China's government is boosting its stakes in the country’s largest banks, attempting to restore investor confidence.
Central Huijin, the domestic arm of China’s sovereign wealth fund, will purchase shares in Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China, according to the Xinhua news agency.
The government is already the majority shareholder in all four banks. In a statement to the Hong Kong Stock Exchange, Central Huijin added it would continue to increase its holdings in the four banks over the next year.
This is China's first such intervention since the 2008 financial crisis. Although Chinese growth continues to show strength, analysts say investors are concerned about the eurozone debt crisis and a slowdown in the US economy. Inflation is also a concern, currently near its highest level in three years.
Analysts say Beijing cannot afford to launch a massive stimulus programme for the Chinese economy on the scale it did three years ago.
Beijing also allowed the renminbi to record its biggest one-day gain in years on Monday, rising 0.6 per cent against the dollar. The rise is seen as diplomatic. On Tuesday, the US Senate will vote on a bill aimed at pressuring China to appreciate its currency.
Report: Central Huijin buys stocks in 4 Chinese major banks [Xinhua, 10 Oct 2011]
Report: Beijing intervenes to help stabilise banks [Financial Times, 10 Oct 2011]
Report: China ups stake in four banks to stabilise share prices [BBC, 11 Oct 2011]
China warned the United States that it would damage relations if it keeps pushing Beijing to let its currency rise, warning of a "trade war".
"Should the proposed legislation be made into law, the result would be a trade war between China and the US and that would be a lose-lose situation for both sides," Vice-Foreign Minister Cui Tiankai said at a news briefing.
"If this type of situation occurs, it would certainly have negative effects on US economic and job growth," he added, "at the same time, it would hinder global economic recovery."
The bill calls for tariffs on imports to the US from countries that the US Department of Commerce deems to have deliberately undervalued their currency. Many in the US believe that China holds down the value of the yuan to give its exporters an edge in global markets. But China claims it is committed to gradual reform of the yuan, which has risen 30 percent against the dollar since 2005.
Analysts say the bill may pass with support from both Republicans and Democrats in the Senate, before being sent to the House of Representatives for voting into law.
Republican House Speaker John Boehner has voiced strong opposition to the legislation, calling it dangerous for everyone. The Obama Administration has also criticised the bill, saying that imposing tariffs may violate international trade rules.
Also at the news briefing, Mr. Cui said China will once again raise the issue of US arms sales to Taiwan at a high-level meeting in Beijing on Tuesday. Mr. Cui will meet US Assistant Secretary of State Kurt Campbell.
The Obama Administration said last week that it is weighing fresh arms sales to Taiwan as part of a sweeping effort to deter any Chinese attack on the island. Such supplies would be on top of plans announced last month to sell new hardware and defence services, including upgrades for Taiwan's F-16 A/B fighter aircraft.
"These arms sales are not consistent with the trend and requirement of peaceful relations currently prevailing across the Taiwan Strait," Mr. Cui said, "from a long term perspective, I also don't think it serves the United States' own interests."
Mr. Cui also brought up the issue of territorial disputes in the South China Sea. He said China welcomed a positive US military presence, but added that "some outside powers" had inflamed tensions in the region. He did not specify which countries he was referring to.
Report: Currency law would hurt U.S. jobs growth [Reuters, 10 Oct 2011]
Report: Warning: Yuan bill to spark trade war [China Daily, 11 Oct 2011]