Chinese firms feel limited impact from SVB's failure; experts warn of global risks

2023-03-13 08:41:59Global Times Editor : Li Yan ECNS App Download

Some Chinese enterprises that have business ties with U.S.-based Silicon Valley Bank (SVB) said that they have so far seen limited impact from the bank's dramatic bankruptcy, but some analysts warned about risks posed by SVB's collapse for global financial markets. 

The bank's fall laid bare the U.S. government's failed monetary and financial policies, and it may trigger a domino effect and have a negative impact on financial markets across the world, analysts noted. 

The world saw the rapid collapse of the 16th-largest bank in the U.S. on Friday, as it was shuttered and deposits seized by U.S. regulators in a stunning 48-hour downward spiral. The lender announced in a surprise move on Wednesday that it needed to raise $2.25 billion to shore up its balance sheet, prompting depositors to withdraw their money amid anxiety over the bank's health.

SPD Silicon Valley Bank (SSVB), a joint venture between Shanghai Pudong Development Bank Co and SVB, urgently clarified on Saturday that it's an independent legal entity that is registered in China, with a standard corporate governance structure and an independent balance sheet.

As the first technology and innovation bank in China, SSVB is committed to serving Chinese technology entrepreneurs and maintains stable operations in line with China's laws and regulations, read a statement on the company's website.

SSVB previously said it's focused on serving Chinese innovation-oriented firms and investors mainly in eight sectors, including healthcare, smart manufacturing, semiconductors and fintech. 

As of the second quarter of 2022, the bank was serving more than 3,000 corporate clients, of which 31 were listed in China or overseas, domestic news site reported.

Everest Medicines, a biopharmaceutical company in East China's Zhejiang that is focused on the development, manufacturing and commercialization of innovative medicines and vaccines, said on Sunday that SVB's collapse has had a limited impact on the company's business, stressing that the company's deposits at the bank are far lower than 1 percent of its total cash volume.

The firm said it's expected to receive most of its deposits at SVB via the U.S. Federal Deposit Insurance Corp (FDIC)'s insurance and other channels. It said that the amount of uninsured deposits is about $1 million, while it has no deposits at other U.S. banks, according to a statement on the company's WeChat account.

Firms cited China's sound policy and financial environment and Chinese start-ups' strong growth momentum for the limited impact so far. 

SVB's fall is seen as the largest failure of a U.S. bank since the financial crisis in 2008. The fallout from the collapse of the bank is starting to spread across the world, as the bank had developed relationships with tech start-ups and the venture capital community around the world over the past 40 years.

"SVB's bankruptcy shows that the U.S.' monetary policy is a total failure. The U.S. Fed's faster-than-expected tightening created turmoil in the global financial system and eventually harmed its own banking system," Li Yong, deputy chairman of the Expert Committee of the China Association of International Trade, told the Global Times on Sunday.

SVB saw a mass inflow of deposits in 2021 amid the ultra-loose monetary policy in the U.S.. As it could not expand its loan business fast enough to generate revenue, the bank invested in longer-term mortgage securities with more than 10 years' duration, with a weighted average yield of 1.56 percent. However, the value of these securities tumbled along with the Fed's rate hikes, leading to depositors' hurried withdrawal of their money.

Li warned that many U.S. banks, especially small and medium-sized lenders, are in the same situation as SVB, which, if not appropriately managed, may set off systemic risks and cause a domino effect across the world.

Britain's finance ministry and the Bank of England are working to minimize the disruption that could arise from a collapse of the UK arm of Silicon Valley Bank, Reuters reported. In addition, Israeli venture capital funds held emergency discussions on Saturday to formulate measures to help Israeli start-ups that cannot withdraw money from their bank accounts, according to media reports.

"Chinese authorities' strengthened regulation of the platform economy over recent years, especially policies that cracked down on monopolies and the disorderly expansion of capital, made Chinese start-ups much more immune to SVB's collapse," Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Sunday.

"SVB's crisis offers other countries a lesson that they shouldn't rely too much on the U.S. financial system, which has loopholes, and instead should maintain independent financial and technology policies," he said.


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