Silicon Valley Bank crisis and the impact on China’s banking sector

Share

The crisis of the collapse of the “US Silicon Valley Bank” began after the US authorities announced on Friday, March 10, 2023, the closure of the “Silicon Valley” bank, which is close to the US official technology community, after the bank suddenly found itself in a state of bankruptcy, and here many feared that there would be consequences of the bank’s collapse in what is known as the “domino effect” on other banks in the United States of America and abroad around the world.  As a result, the clients of the US Silicon Valley Bank, most of them from technology companies, began to withdraw their deposits, in light of their need for liquidity to obtain the necessary financing for their projects, which prompted the US Silicon Valley Bank to sell the bonds, despite not achieving any significant gain, and at a loss in order to cover  Withdrawals by clients and clients who deposit with it, especially in its branches spread in Europe and around the world.

 It is considered the main reason for the collapse of the US Silicon Valley Bank, after the US Federal Reserve raised interest rates a year ago to curb inflation occurring in the US and globally.  But high borrowing costs have depleted private equity in the digital and technology industries, from which Silicon Valley Bank was benefiting. The high interest rates also eroded the value of long-term bonds, which were devoured by the US Silicon Valley Bank, along with a number of other banks.

 Therefore, the US Deposit Administration entrusted the Federal Deposit Insurance Corporation in the United States of America to prevent the spread of the impact of the collapse and bankruptcy of the “Silicon Valley Bank” on all banking sectors and the American digital and technological transformation sectors.  The American “Silicon Valley Bank” is seen as one of the main banks that provide loans to emerging companies in the field of technology, innovation and digital transformation in the United States and abroad as well, in addition to its strong ties with venture capital companies around the world. Therefore, the repercussions of the bankruptcy crisis and the collapse of the US Silicon Valley Bank have become significant for some banking sectors around the world, given that the bank owns several units and shares in Canada and Europe, in addition to the existence of a joint venture in China itself.

 It is worth noting here that the technology sector in China is the main engine of growth in the country, while it enjoys strong ties with economic entities in the “American Silicon Valley”, in addition to the fact that many emerging companies based in China have accounts in the “Silicon Valley” bank.  The same American.

The crisis of the collapse of the “American Silicon Valley Bank” extended to the banking sectors of many countries, such as the British banking sector as the largest partner of its American counterpart, so the British authorities tried to quickly remedy the matter by committing the British government to work on developing a plan that would allow British technology companies to maintain their liquidity after the bankruptcy of the bank of “American Silicon Valley”, especially after it was noted that the reports of depositors’ letters to the “American Silicon Valley Bank” branch in Britain were late in arriving.

  In my opinion, China was not greatly affected by the collapse and bankruptcy of the “Silicon Valley Bank”, according to the estimates of the banking authorities and the banking and government banking sectors in Beijing, which confirmed that the repercussions of the bankruptcy of the “Silicon Valley” bank on Chinese financial institutions are “very limited” so far.  The Chinese government stressed that “Chinese banks are very strong and stable and have resilience compared to their American counterparts” and that any collapse of the US bank “had no significant impact on the Chinese banking system”. China’s official banking indicators also showed an increase in stock prices in China and Hong Kong on Monday, March 13, 2023, immediately following the announcement of the collapse of the US Silicon Valley Bank.

  On the other hand, we can analyze the situation more accurately by emphasizing that the collapse of the US “Silicon Valley Bank” came as a strong blow to the US economy and banking sectors around the world and the loss of confidence in the continuation of the US digital technology sector to lead the digital technology and artificial intelligence sector compared to China.  Therefore, the United States government tried to remedy the situation globally by pledging the American authorities to take steps to protect the funds of depositors in the “Silicon Valley” bank after declaring its bankruptcy, and the confirmation of the American authorities that the losses will not be borne by taxpayers, with personal reassurance from President “Joe Biden” to all American citizens that their banking system is safe and will not be affected by the Silicon Valley collapse.

   According to my analysis, China will benefit greatly from this American crisis in attracting more investors in digital technology sectors around the world, especially after China’s success in developing new technology sectors and modern digital transformation to develop its production and transform its cities into innovation centers that compete with the “American Silicon Valley” globally.  Technological innovation is no longer a monopoly only on the American Silicon Valley, after the success of a number of Chinese cities in establishing giant technological and digital research and development centers, especially after the crisis of the Corona pandemic (Covid-19) and the resulting need for rapid digital transformation and the development of artificial and cyber intelligence technology in all sectors.  sectors in the Chinese state, as well as the experience of digital transformation in cities and rural villages in China, so China has established several giant technology and digital companies to pump capital and bring in the best Chinese and international talents to localize and transfer American and global technology inside China.

  China’s entry into a “new technological and digital age” is part of Chinese President Xi Jinping’s thought to achieve “the Chinese dream of rejuvenating and rejuvenating the Chinese nation”. Technological and digital innovation and development in China is an engine of the global economy, and the transformation of Chinese cities plays a decisive role for China to become a major technological and digital power in the world, competing with major American and international companies operating in the innovation and digital technology sector.

  Hence the “Silicon Valley” collapse crisis affected the banking sectors in the whole world to varying degrees or in one way or another, with the exception of China due to the strength of its banking sector and digital technology, which came with the interest of Chinese President “Xi Jinping” and the leaders of the ruling Communist Party in China in digital transformation.  And innovative in all Chinese sectors, and this was confirmed by the meetings of the two sessions or sessions “Lianghui” this year 2023 of the National People’s Congress and the Chinese People’s Political Advisory Council, by emphasizing the necessity of digitally transforming all Chinese sectors and cities using artificial intelligence technology. Therefore, Chinese cities began to promote this digital momentum to create work environments that attract a third of global technology companies to have headquarters in China. China, along with the United States of America, includes 80% of the emerging companies in the digital transformation technology sector, which have a value of about one billion dollars.

 The city of “Fujian” is the second largest market for export, digital and technological trade in China, and the “Pluto Free Trade Zone” is the center of global digital trade in China.  The Chinese to “establish an industrial complex for cross-border e-commerce as a headquarters for the export of digital technology around the world, and it is the second branch of the ‘EBay’ company after its branch in the city of “Shanghai”, China. In view of the activity of the city of ‘Fujian’ in the digital technology industry sector, it was chosen to establish the first “Institute for Innovation” for “Microsoft International”. China has also made Fujian the seat of the “First Digital Summit” and a showcase for showcasing the gains of the development of the Chinese digital economy around the world.                     

 The Chinese government has sought to create development zones to be the headquarters of Chinese companies, such as the Chinese “Xiaomi company”, and even American giants such as “Google” have established “research and development” centers in China.  China has succeeded in concluding many deals, establishing and financing emerging companies in the technology sector and digital transformation. Moreover, the affordable cost of living provides businessmen, workers and foreign investors in China with an attractive work environment for their investments in the sectors of technology and new digital transformation, which are factors I have taken into consideration.  The largest technology companies in the world, such as the “Expert Market” company, to indicate that the Chinese capital, Beijing, and Silicon Valley are a global technological hub.  The Chinese government’s provision of jobs in the technological and digital sector led to a structural transformation in the Chinese economy as a whole, and also had an impact on the rise in wages in Chinese cities, and because of it, Beijing occupied the forefront as the richest city in China and the world.

  Technological innovation is no longer confined to Silicon Valley only, as Chinese and international start-up companies have chosen a number of Chinese cities as the headquarters for establishing their research centers, creating technological hubs with a strong injection of capital and creating conditions to bring in the best talents.  Foreign capital is mainly concentrated in several major regions whose local economy is compared to the gross domestic product of industrialized countries. The Chinese technology titans, the drivers of China’s digital transformation, are driving economic development in these cities. The technology industry and digital transformation in China are concentrated in the regions of the Yangtze River Delta, which includes (Shanghai, Suzhou, Hangzhou, Wuxi, Ningbo, and Changzhou), with investment rates estimated at about $3 billion, which is equivalent to the economy of a country like Italy in particular, while the region is located the third major city for technology industry and digital transformation in China on the “Pearl” River Delta, which includes cities of (Hong Kong, Guangzhou, Shenzhen, Fujian, Dongguan, Macau).

   Finally, according to my analysis, there are a number of lessons learned for the Chinese banking sector to learn from the crisis of the collapse of the US Silicon Valley Bank, by working to continuously secure its conditions by developing a plan that allows Chinese technology companies to maintain their liquidity permanently, in addition to the need to reduce interest rates on borrowing.  Continuously, in view of learning and benefiting from the crisis of raising the value of interest rates by the US Federal Reserve, which resulted in that major crisis within the US banking and banking sectors, led by Silicon Valley Bank. It has also become imperative for banking regulators in China to request major banks to retain large additional capital to be used in the event of a sudden crisis that may strike the banking sectors in the Chinese state and the world, such as the crisis of the spread of the Corona pandemic (Covid-19) and the crisis of the collapse of the American Silicon Valley Bank, with its implications. It has global extensions, and this is indeed what all recent experiences have highlighted, which indicate the success of the Chinese banking sector in dealing with any sudden crises.

Dr.Nadia Helmy
Dr.Nadia Helmy
Associate Professor of Political Science, Faculty of Politics and Economics / Beni Suef University- Egypt. An Expert in Chinese Politics, Sino-Israeli relationships, and Asian affairs- Visiting Senior Researcher at the Centre for Middle Eastern Studies (CMES)/ Lund University, Sweden- Director of the South and East Asia Studies Unit

Latest