Central Huijin Investment Corp, the central bank's investment arm, plans to invest US$40 billion in the Agricultural Bank of China, the Economic Observer reported over the weekend.

The cash injection will be a big step in the long-awaited shareholding reform of the bank, the last of China's "big four" lenders that have yet to be listed.

The US$40 billion will come from a foreign exchange (forex) investment agency to be set up soon. The agency will manage part of China's US$1.33 trillion forex reserve, the newspaper said, citing unnamed sources.

A month ago, China's legislature authorized the Ministry of Finance to issue 1.55 trillion yuan (US$200 billion) in special treasury bonds to fund the setting up of the forex agency.

The agency will use US$65 billion of the total funds to take over Central Huijin, the newspaper said.

The report gave no further details, and Agricultural Bank officials were unavailable for comments.

The central government set the tone for the Agricultural Bank's restructuring at the beginning of the year, although detailed plans have not been worked out.

But it is generally believed that the bank will follow the restructuring steps of the other three big commercial banks: government capital investment, dealing with non-performing loans, setting up shareholding companies, introducing strategic investors and seeking opportunities for listing.

"It's for capital investment, no doubt, but the amount is to be determined by its financial status - how much it needs to peel off its bad assets and raise its capital adequacy ratio to the regulatory requirement of above 8 percent," Renmin University of China professor Zhao Xijun said.

(China Daily August 6, 2007)