A Brief analysis of Chinese finance in the epidemic

Name: Kaining Lu

Student Number: 40287327

Chinese Finance (in the midst of the epidemic)

 

When it comes to China's financial, I head out of the first signal is triggered by  George Soros in 1997 Hong Kong financial battle, at that time, there are many loopholes in China's financial industry, but is now 2020, although obtained the fast development of China's financial industry also makes up for the many loopholes, but in the first half of this year has a very big challenge - COVID - 19. I will make my own views on China's financial situation in this epidemic from three aspects in combination with current politics.

 

From the perspective of financial industry, first of all, from the perspective of banking sector, the epidemic will have a temporary impact on the fundamentals of Banks. From the four dimensions, 1. The foreign assistance of Banks in credit will cost quite high, such as reducing interest rates and reducing fees for enterprises in the epidemic area. 2. Delayed resumption of work and people's home isolation may lead to a decline in effective credit demand in the first quarter, dragging down bank revenue growth. 3. As the economy comes under pressure and interest rates are forced to fall, the trend of narrowing bank interest margins will accelerate. 4, the quality of bank credit assets deteriorated, for those unable to cash flow, they will be difficult to meet the repayment schedule. In a word, Banks also know that they cannot dominate the real economy and become castles in the air. Banks may suffer some losses, but to some extent, they will still consider for the sake of those enterprises. After all, they still need to rely on the development of these enterprises to maintain their own development after the epidemic.

 

From the perspective of bond field, compared with SARS in China in 2003, the yield of 10-year Treasury bonds in China decreased from April to May 2003, and began to rise in a volatile way in June, but the fluctuation was not obvious. During the SARS outbreak in 2003, the monetary policy was generally sound, and the People's Bank of China did not cut interest rates or lower the required reserve ratio. This was also because China had just joined the WTO, enjoyed rapid economic growth, a double balance of payments surplus and a large inflow of foreign exchange. Now, the impact of COVID-19 will lead to marginal easing of monetary policy by the People's Bank of China. In the past few months, the People's Bank of China has injected 1.7 trillion yuan of liquidity through reverse repos. However, in my opinion, what it has released is not only liquidity, but also confidence.

 

In commodities, i.e., copper, iron, aluminum, steel, oil, etc., and now the outbreak will have a greater impact on the international commodity, I two influential example, oil and copper, the SARS period in 2003, domestic gasoline consumption growth is down 8%, kerosene consumption growth fell 40%, the overall oil demand growth from 10% to 3%. The global spread of the disease and the decline in demand have sparked concerns, with oil prices at one point plummeting 28% from a high of $33.9 a barrel and global oil consumption growth slowing from 2.5% to 1.5%. But today, domestic consumption has doubled from 6.9% to 13.4% of the global total. Therefore, it is reasonable to assume that the impact of the epidemic on China's domestic consumption will have a more profound impact on the international market. Copper, in addition to oil products, entered a downward trend before the Spring Festival, dropping from $6,200 / ton to $5,560 / ton. Copper is highly correlated with the macro economy and is widely used in the fields of electricity, construction and household appliances. Meanwhile, the amount of copper used in construction accounts for 21% of the terminal demand of copper. In the short term, demand for construction copper has been compressed due to the delay in the resumption of work at major construction sites due to the epidemic. In addition, copper used in home appliances accounts for 17% of the terminal demand of copper. Affected by the epidemic panic, the export of copper home appliances may be affected, resulting in a decline in demand for copper, and finally the copper price can only decline.

 

In a word, I think the overall performance of China's finance in this epidemic is still good, but there are still some obvious problems, which brings challenges and introspection to China's finance.