How Covid-19 Has Affected The Chinese Economy?

Web Desk — Beijing, in an encouraging move, will waive forex derivative trading fees for small companies to help them better hedge against currency risks in a virus-hit Chinese economy.

According to the operator of China’s interbank market, the notice by the China Foreign Exchange Trading System (CFETS) came amid spiking volatility in the yuan, which plunged against the dollar over the past week amid worries about China’s economic health, and the country’s evaporating yield advantage.

The move is aimed at “further supporting the real economy, and reducing companies’ hedging costs,” CFETS said.

According to the notice, trading frees for derivatives including yuan forwards, swaps and options will be waived for two years.

China’s central bank has been encouraging companies to use derivatives to hedge risks, rather than make one-way bets on the yuan, as it deepens reforms of the yuan market and tolerates greater volatility.

How Coronavirus Has Affected China Economy?

China’s economy shrank for the first time in decades as the virus forced factories and businesses to close.

The world’s second-biggest economy contracted by 6.8% according to official data.

Coronavirus is having a significant financial impact on the Chinese economy, which will be of concern to other countries.

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China is an economic powerhouse. As a major consumer and producer of goods and services, its economic loss will have an indelible impact on the world economy.

In the last few days, mainland China has seen its worst Covid outbreak since the initial height of the pandemic in early 2020 — when the economy contracted.

This is the first time China has seen its economy shrink in the first three months of the year since it started recording quarterly figures in 1992.

“The GDP contraction in January-March will translate into permanent income losses, reflected in bankruptcies across small companies and job losses,” said Yue Su at the Economist Intelligence Unit.

“Economic loss may be real this time,” Citi analysts said in a report, estimating the outbreak could hit China’s first-quarter GDP by at least half of a percentage point.

The most affected regions account for 16.7% of national GDP, according to Citi estimates.

“Economic loss may be real this time,” the analysts said. “Jointly considering the spillover effect to other regions, we think the lockdown and tightened quarantine measures this round could potentially deduct ~0.5-0.8 ppt of GDP growth in Q1, assuming no policy responses.”