China plans industry-funded rescue fund

The Chinese government is planning to set up an industry-funded rescue fund to avert a financial crisis by supporting struggling financial institutions.

This new fund aims to prevent sudden financial institution collapses, like banks and payment service companies, rather than just protecting bank depositors. Such collapses could cause widespread financial market turmoil.

The details of the fund’s operation will be outlined in a bill currently under deliberation by the National People’s Congress Standing Committee.  The bill is expected to pass by year-end.

Funding for the rescue fund will mainly come from contributions within the financial industry. Government sources estimate the fund could reach hundreds of billions of yuan, with an initial estimate of around 100 billion yuan ($13.8 billion).

China already has existing deposit insurance and separate funds for the insurance and trust sectors to protect consumers in case of financial institution failures. This new fund aims to support institutions directly to prevent a domino effect it one institution collapses.

President Xi Jinping’s government is prioritising the containment of financial risks in the real estate sector. Loan default concerns have risen due to cases involving big developers like China Evergrande Group and Country Garden Holdings.