What is the role of raising the benchmark interest rate during the economic crisis?

The impact of the economic crisis on China

Abstract: At present, the U.S. subprime mortgage crisis has fully erupted, not only triggering global financial turmoil, but also beginning to have an impact on the real economy. With the stock market plummeting and credit shrinking, investor confidence has collapsed, many developed countries and some emerging market countries have fallen into recession, and the risk of the world economy entering stagnation or even recession has significantly increased.

Keywords: economic crisis, impact, employment.

The impact of the U.S. economic crisis on China’s banking industry.

The central bank’s monetary policy is in a dilemma. Currently, the central bank's monetary policy is in a dilemma between "maintaining growth" and "controlling inflation." Under the global economic crisis, China's economic growth has been suppressed, and a slowdown in growth rate is inevitable. However, a "sudden brake" after 10 consecutive years of rapid growth will cause a large number of companies to close down and create employment difficulties, affecting social stability and harmony. However, loosening monetary policy has made the already serious PPI and CPI even more severe. The market did not appreciate the "two rate" reductions announced on the 15th as proof. Similarly, whether the RMB will continue to appreciate or depreciate against the US dollar is also a "dilemma". Just in the past two days, global central banks and financial regulatory authorities, led by the Federal Reserve, have shown their magic and injected more than US$300 billion in liquidity into the financial system. The Federal Reserve has injected $120 billion into the market through repurchase agreements in the past two days. This is the largest capital injection since 9/11. After the United States, many central banks in the Eurozone, the United Kingdom, Japan, Australia, and Switzerland have also successively taken capital injection measures. In Asia, China and Taiwan have successively announced reductions in deposit reserve ratios or loan interest rates, while Indonesia has announced a reduction in overnight repurchase rates. However, the efforts of central banks did not yield immediate results. The Dow Jones Industrial Average, S&P 500 Index, Nasdaq Composite Index, European stock markets, and London stock markets all fell. Shanghai and Shenzhen A-share financial stocks were under heavy selling pressure, and the ten-year cost line of the Shanghai Composite Index was also in jeopardy. After investors' confidence falls to the "freezing point", any rescue measures will turn into a "flash in the pan" and "green scenery" under heavy selling pressure. But active fiscal policies are needed, and today's unilateral collection of stamp duty is a better way to rescue the market. After investor confidence is lost, it would be best to abolish stamp duty altogether.

The impact of the U.S. economic crisis on China's real estate industry

In the economic downturn caused by the global economic crisis, the real "winter" of China's real estate industry and the risk of bank non-performing loans will be at the end of 2008 It began to appear in the first half of 2009. In the future, the transaction volume of the real estate industry will continue to decline, the confidence of home buyers will weaken and they will wait and see, the vacancy rate will continue to increase, and the gross profit margin will decrease, which will cause developers to encounter cash flow problems, and the risk of real estate non-performing loans in the banking industry will greatly increase.

According to Goldman Sachs’ analysis of bank lending records to 65 real estate developers, since the real estate market adjustment in October last year, developers’ insufficient cash flow has gradually been exposed; however, developers are still using relatively High interest rates attracted funds from domestic and foreign private investors. In order to raise cash, big-name domestic real estate developers such as Vanke and Evergrande are competing to reduce prices. It is obvious that housing prices in Pearl River Delta cities have fallen into a downward trend. In particular, the three cities with the largest year-on-year declines are Shenzhen, Guangzhou and Huizhou. . Chinese government agencies said on the 16th that the house price index tracking 70 cities fell for the first time in August from the previous month, with the Shanghai area falling by 0.2. At present, falling house prices are becoming more and more common across China, and real estate investment is further shrinking. In addition, Morgan Stanley, which once actively invested in Shanghai real estate, is now selling off some of its top luxury properties. Recently, Morgan Stanley's real estate fund put two Shanghai luxury properties up for sale, including more than 100 commercial residences in Xintiandi. In addition, Morgan Stanley was originally interested in buying floors of the Shanghai World Financial Center, the tallest building in Shanghai, but later gave up.

Judging from the "economic crisis" in the United States, Morgan Stanley's auction of Chinese real estate may be preparing for a potential liquidity crisis. It may also indicate that some foreign capital is beginning to prepare to withdraw from the Chinese real estate market, which will have a negative impact on China's already harsh winter. The real estate market is "making matters worse" - first, developers face a solvency crisis, and then weak real estate developers go bankrupt, which in turn affects domestic banks.

The impact of the U.S. economic crisis on China’s steel market

As far as the financial events that have just happened, the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank announced on the 16th that the financial system Injected more than $180 billion in funds to alleviate liquidity shortages. However, relief is only relief after all. The crisis has already occurred, but its negative impact on the world economy is expanding. All walks of life, led by real estate, are facing a decline in production and demand, and the demand for steel will shrink significantly. Statistics show that as the world's largest steel producer and steel exporter, China's steel exports reached 43 million tons in 2006 and 62.64 million tons in 2007. From January to August 2008, steel exports were 41.84 million tons. , a year-on-year decrease of 3.25 million tons, a decrease of 7.2%. Once steel exports are affected by the shrinking world steel demand, China's domestic steel production capacity will be "oversupplied" to a new level, and the domestic steel industry will face a long-term decline. The impact of the international economic crisis on China's steel products is not only reflected in the impact on exports. After China joined the WTO, China's economy has become increasingly globalized. The recession of the world economy will also greatly affect the development momentum of China's economy. In the first half of this year, in order to curb inflation, the government's policy was to tighten monetary liquidity. When the international economic crisis had an increasing inhibitory effect on the Chinese economy, the government began to gradually relax monetary policy. Almost immediately after one of the three major investment banks in the United States was acquired, one declared bankruptcy, and the other went bankrupt, causing the U.S. government to inject $80 billion in capital, the domestic central bank's "interest rate hike" finally changed in response to the situation. On September 15, the central bank announced that starting from September 16, it will lower the one-year RMB loan benchmark interest rate by 0.27 percentage points. The benchmark loan interest rates for other maturity grades will be adjusted accordingly in accordance with the principle of more adjustments in the short term and less adjustments in the long term. The benchmark deposit interest rates will remain unchanged. constant. Starting from September 25, except for the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank, the RMB deposit reserve ratio of other deposit-taking financial institutions will be reduced by 1 percentage point. Wenchuan Earthquake The deposit reserve ratio of local legal person financial institutions in the hardest-hit areas will be reduced by 2 percentage points. As in the past, government policy adjustments are merely in response to changes in economic development. Previous interest rate increases were to prevent the economy from overheating, and this rate cut will be to prevent an economic recession. In just six months, the policy changes have been so obvious, which shows that the central government has already foreseen the huge impact of the international economic crisis on China. Therefore, the author asserts that since the international economic crisis has had a huge impact on China, and the central government needs to raise the rate several times to prevent economic overheating, it will also need to lower it several times to survive the intensifying economic crisis.

For China's domestic steel production, sales and demand, the reduction of the "two rates" is undoubtedly a good thing. However, due to the sluggish demand for steel in downstream real estate, home appliances, machinery manufacturing and other industries, the reduction in the "two rates" is almost negligible. As we all know, real estate prices across the country have experienced significant declines recently. Once a downward channel is formed, it is very difficult to restore market confidence in a short period of time. Under the influence of the international economic crisis, both developers, real estate speculators and ordinary people in China will be cautious about real estate investment. The only purpose of those developers and real estate speculators who have been clamoring for bailouts all day long is to "unwind", and it is impossible to continue to invest more. This is likely to cause a downturn in China's real estate industry for a long period of time. In addition to the real estate industry, China's export-oriented economy will also be severely affected.

This year the central government proposed to transform China's "export-driven" economy into a "domestic demand-driven" economy, but after all, China is currently an "export-driven" economy. It can be foreseen that if the current international economic crisis really turns into the "Great Depression" in 1923, those Chinese enterprises that mainly focus on exports will be hit hard. We all know that the demand for steel involves all walks of life. It is conceivable that the shrinkage of several major industries will have a huge impact on the demand for steel. Therefore, the author believes that under the background of the international economic crisis, China's steel industry will face a period of depression in one to two years.

The impact of the U.S. economic crisis on China's shipping industry

The shipping industry as a whole is a cyclical industry. The highs of the shipping market in recent years have caused shipowners to increase a large number of ship orders, even without considering The drop in demand is enough to cause the shipping industry to enter a downward cycle. Based on the fact that CICC’s macro team is more bearish on the future of China and the global economy, we believe that the feast of the shipping market has passed and 2008 will be the peak of the cycle. Dry bulk market: Due to the huge order volume, it will face a downward cycle of 3-4 years. The average BDI in 2009-10 is currently expected to be 5,000 and 3,000 points. Oil tanker market: The downward cycle in the next three years may only rebound in 2010, and the freight rate of product oil tankers will decline slightly more than that of crude oil tankers. Container shipping market: It will continue to be sluggish in 2009. Whether it can get out of the trough in 2010 still depends on the economic trends in Europe and the United States. We give shipping stocks an overall “underperform” rating and recommend “avoiding strong cycles and trading in ranges for weak cycles” in the future. The rebound in stock prices brought about by the seasonal peak season in the fourth quarter will be a shipping opportunity. We have lowered the profit forecasts of China COSCO, CSC Oil Shipping, China Shipping Development and China Shipping Container Lines to varying degrees. At the same time, we have lowered the ratings of China Shipping Development and COSCO Shipping from "Recommended" to "Prudent Recommendation". The ratings of China COSCO and CSC Oil Shipping have been reduced from "Recommended" and "Crudent Recommendation" were downgraded to "Neutral".

The impact of the U.S. economic crisis on China's textile industry

The costs of raw and auxiliary materials used in production, energy costs, labor costs, etc. continue to rise, the appreciation of the RMB, the U.S. subprime mortgage crisis and the continued weakness of the domestic market Due to the same impact, from January to June 2008, the company's net profit dropped by 43.70% compared with the same period last year. In the second half of 2008, affected and restricted by the domestic and international economic environment, many unfavorable factors still existed, which had a negative impact on the company's economy. The efficiency impact is greater. This is a statement in the semi-annual report of Demian Co., Ltd. Affected by factors such as the subprime mortgage crisis, similar expressions can be seen in the public information of many textile companies. The textile industry is facing many difficulties. "The average contribution rate of rising export prices to export growth in the first seven months has been declining, which means that my country's ability to raise prices for textile exports is gradually declining." Recently, Wang Jinjin, editor-in-chief of the First Textile Network, disclosed Concerns were expressed about the ability of textile companies to raise export prices. Data show that starting from the second quarter of this year, the growth rate of my country's export prices began to accelerate, causing the growth rate of my country's textile export comprehensive price index to slow down to 3.52 in the first seven months, and the volume growth rate dropped to 5.21. During the same period, the growth rate of textile export volume also dropped to 8.92, and the price The contribution rate to exports is significantly lower than the volume. The industry downturn has also seriously affected investor confidence. Statistics from the First Textile Network show that from January to July this year, my country's textile industry completed a cumulative investment of 153.41 billion yuan, an increase of only 13.14% year-on-year. The growth rate dropped by 13.15% compared with the same period last year. Textile investment has actually fallen below the 10-year average. According to Liu Xin, an industry analyst at the China Textile Economic Information Network, from the perspective of investment by industry, except for the cotton spinning industry, where the investment scale has shrunk compared with the same period last year, other industries have continued to grow, but silk and manufactured products have continued to grow. The investment growth rates in , knitting, clothing, chemical fiber, textile machinery and other industries have declined to varying degrees compared with the same period last year. Among them, the most prominent drop in investment growth rate is the textile machinery industry, whose investment growth rate dropped sharply by 30.92 percentage points compared with the same period last year. On the other hand, many textile and garment companies have begun to cut labor costs. Currently, 30 listed textile and garment companies have reported a year-on-year decrease in "cash paid to and for employees".

Similarly, communications and Internet companies have also slowed down their expansion.

These impacts will affect the lives of the Chinese people. The damage to these industries will cause more companies to close down and more people to be laid off. Therefore, employment is the foundation of people’s livelihood! China's economy should indeed shift from being dominated by external demand to being driven by domestic demand as soon as possible, and Chinese companies should also focus on industrial upgrading, even if this transformation leads to the death of some companies. However, in the face of a possible surge in the unemployed population, only by ensuring employment can we win the necessary stable environment for adjustment. In this difficult situation, helping citizens keep their jobs is one of the greatest responsibilities of the government

Reference:

China Economic Information Network

Economic Observer Network

Economic Observer