[HONG KONG] China's central bank will inject US$48 billion into the country's biggest policy lender, China Development Bank Corp (CDB), two sources with direct knowledge of the matter told Reuters on Friday, as China steps up reforms at its policy banks to fight an economic slowdown.

The government said in April it would reform its three giant policy banks - CDB, Export-Import Bank of China and Agricultural Development Bank of China - in order to pump-prime the world's second-largest economy that is set to grow at its slowest pace in a quarter-century, and to finance Chinese companies' growing global ambitions.

The central bank's capital injection will take place via a debt-to-equity swap, using entrusted foreign reserve loans, the sources said, adding that a wholly-owned subsidiary of the State Administration of Foreign Exchange will hold the central bank's stake in CDB.

When contacted by Reuters, the central bank, foreign exchange regulator and CDB all declined to comment.

Set up in 1994, CDB is responsible for financing China's large infrastructure investments at home and overseas. It was called upon by the State Council to "increase support to strategic areas and sectors in difficulties." CDB has no deposit taking business and relies mainly on bond issuance for its funding.

In June, China's banking regulator decided to rate bonds issued by CDB as risk-free indefinitely, showing strong support for the policy lender that had assets of more than 10.3 trillion yuan in 2014, dwarfing those of the World Bank.

As recently as July 1, the central bank extended $25 billion in subsidised loans to CDB, with an interest rate of 3.1 per cent, to boost China's flagging economy.

In the first half of this year, CDB gave new loans worth 419.8 billion yuan to fund China's urban housing regeneration and 729 billion yuan loans for urbanization, Liu Yong, CDB's chief economist said at a news conference hosted by the China Banking Regulatory Commission on Thursday.

CDB has also pledged to give 100 billion yuan in loans to the railway sector this year, Mr Liu added.

To support President Xi Jinping's "One Belt, One Road"initiative, CDB by the end of last year had signed agreements worth more than US$137.3 billion with countries along Xi's modern version of the Silk Road, financing projects in sectors from energy and mining to infrastructure and manufacturing, Liu said.

CDB's capital adequacy ratio stood at 11.88 per cent as of end-2014, according to its annual report.

REUTERS