Traders who stay in the office and sleep on the trading floors had limited success in maintaining currency volumes. Bank settlement and sales fell 30% from March to $61.8 billion. According to data in 2019, that is 15% of the national total when compared to a steady share of approximately 20% before the lockdown.
According to Peiqian Liu, chief China economist at NatWest Group Plc, the data clearly show that the lockdowns have had a significant impact on economic activity. “Corporate hedging, buying and selling of currencies has been affected, even though financial services may have remained running to a large extent,” she explained.
Prolonged Covid restrictions have impacted China’s economic prospects, prompting banks such as UBS Group AG and Goldman Sachs Group Inc to decrease their growth forecasts for this year. The economic impact on Shanghai has been disastrous. Last month, no cars were sold in the city, and industrial output dropped more than 20 times faster than the rest of the country. Shanghai’s industrial export deliveries in April dropped 57% year on year.
Despite trying to ease restrictions, Shanghai is not yet out of the woods. Last week, the city’s vice mayor explained that the city hopes to return to normal life and full factory production by mid-to-late June.
Facing The Bad Timing
The disruption in currency trading should not have happened at a worse period. Concerns about a Covid-affected economy increased withdrawals from the country’s financial markets last month, while a widening monetary policy gap with the US reduced foreign appetite for Chinese debt.
Due to the Covid crisis, several banks in Shanghai and Beijing were short-staffed. Last month, when demand for currency settlement increased significantly. Due to the sharp depreciation of the yuan, they were unable to provide new quotations in time, according to Zhong Chuan Finance Co. Ltd, a finance unit of the state-owned China State Shipbuilding Corporation, which said in an article on its official WeChat account.
According to Bloomberg calculations based on China Foreign Exchange System data, the daily average dollar-yuan spot trading volume in the onshore market fell to around $26 billion in April from $31 billion in the first three months of the year. This is despite the fact that authorities are investigating the trading drop and have eliminated currency trading costs for small businesses.
As part of its goal to become a worldwide financial center, the city wants to increase the total amount of financial transactions to nearly 2,800 trillion yuan ($419 trillion) per year by 2025.
“Recovery in Shanghai will be gradual, and financial activity will remain restricted in many ways,” said NatWest’s Liu.
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