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The Chinese government plans to inject billions of dollars into its major banks and insurance companies to stimulate economic growth. The logic runs in one direction cleanly: bigger balance sheets, more capacity to lend.
What runs the other way is the question of whether more capacity produces more actual credit.
The case for the injection is that state-directed capital can shore up financial institutions quickly and, at least in theory, expand the pool from which loans are drawn.
The risk is that the bottleneck isn't capital at all. If households and businesses aren't borrowing, a well-funded bank is still an idle bank.
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