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Struggling Chinese Bank Gets a Lifeline From State-Backed Investors

The Industrial and Commercial Bank of China, the country’s largest bank by assets, said one of its units would pay up to 3 billion yuan ($435.6 million) for a 10.82% stake in Bank of Jinzhou Co., which lends mostly to small and medium-size companies in a northeastern region of the country.

ICBC said its investment was aimed at supporting the regulators’ goal of channeling more funding to the private sector.

Two of China’s largest asset managers that specialize in handling distressed debt will also take minority stakes, Bank of Jinzhou said. China Cinda Asset Management’s stake would represent about 6.49% of its shares. China Great Wall Asset Management’s stake wasn’t disclosed.

The news sent prices of Bank of Jinzhou’s U.S. dollar bonds higher on Monday, according to traders. The introduction of state-backed firms could pave the way for future capital injections into the bank, said some analysts.

The recent moves had little impact on the country’s money markets despite investor concern over the health of the Chinese banking system in recent weeks. In May, Chinese regulators seized control of Baoshang Bank, once controlled by a missing tycoon and facing serious credit risks. The authorities said the takeover was an isolated incident but it led to spikes in some short-term lending rates and other market dislocations. The regulators took steps to calm the market by pumping liquidity into the system and asking brokers and financial firms to continue to trade with each other.