Dr. Yanni Li
Fotocredit: ICBC Austria
Right after completing my PhD over 20 years ago, I joined ICBC where I had the opportunity to work at the head office in Beijing as well as at overseas offices. Working for ICBC Asia in Hong Kong from 2004 to 2008 involved experiencing several ‘firsts’ of ICBC: the first ICBC overseas subsidiary, the first ICBC overseas acquisition and the first ICBC listed company. Working for ICBC Standard in London – a ground-breaking acquisition for ICBC focusing on global markets, especially commodity and FICE business – was another valuable experience before heading ICBC Austria.
The global financial and international banking market underwent huge changes in the past 20 years, providing me with the platform for career development.
Thank you for giving us the opportunity to discuss the effects of COVID-19 with you and, especially, take an outlook into the economic and banking environment. You are a Chinese citizen based in Austria – How did you learn of the severity of COVID-19 and the developments that followed?
We heard of it from the very beginning through Chinese media. ICBC being a global bank, we received constant communications and supports from our headquarters in Beijing concerning the developments in Wuhan and China as a whole. This also helped us in preparing for the spread of the virus in Austria and Europe. For people not familiar with viruses prior to the coronavirus, the implications were probably hard to comprehend in the beginning. One has to understand that Wuhan is a very developed city with over 10 million people and good infrastructure, especially concerning medical facilities. Thus, we knew that the initial information communicated through media globally, namely that only older people with underlying health conditions can be affected, was wrong. It is truly a big tragedy and a massive strike to the world economy.
China has been through the epidemic earlier. We hoped others would not waste time and avoid detours. In Austria, we purchased disinfectants, masks, goggles etc for the protection of all employees and families already in February. We issued a series of guidelines for employees’ behavior during the pandemic. We are delighted seeing all our employees safe during this difficult time. Meanwhile, we understand how tough the fight against the coronavirus is, which is why we donated masks and detecting kits to the Austrian Red Cross, because this is the right thing to do.
Here in Austria we see models like ‘Kurzarbeit’ and debt deferrals. In comparison, how is the government financially supporting companies in China – local businesses as well as foreign companies?
Like other countries, the Chinese government also provided extensive financial support to the Chinese economy. There is a multitude of support measures; for example, preferential loans offered especially to small- and medium-sized enterprises (SMEs) that were hit severely by COVID-19. But there were also cuts on interest rates and on certain taxes, implemented to boost consumption. Moreover, there are several government services now on offer for free, such as online trainings for businesses for information and self-education. At local government level there is also some assistance provided for individuals in the form of vouchers and social security support.
The NPL (non-performing loan) ratio in China climbed to almost 2 percent in the first quarter and is expected to continue this upward trend at a moderate pace in the second quarter. How is the credit risk assessed under these exceptional circumstances, considering numerous businesses and whole industries are facing fears of business continuity?
The NPL ratio of Chinese banks rose slightly in the first quarter by 5bp to 1.91 percent, while we may see a further growth in the second half of the year for certain industries. We see that tourism and aviation have been damaged dramatically. SMEs and companies focused on export will see a heightened level of impaired loans. Hubei Province and the Northeast might be impacted hugely. Smaller urban and rural banks with an aggressive risk appetite might face a significant hit to asset quality. We will see the developments along the way while coping with this big ‘stress test’. Nonetheless, I have full confidence in the Chinese economy since many indicators in May are already showing improvements. I think the overall risk for China has been assessed as moderate. Banking’s high provision coverage and conservative asset classification are also able to cushion the banks from weakening assets quality.
Big banks, such as ICBC, have the means and risk structure to handle such an increase in defaults while keeping relatively healthy operations. Net profit of ICBC group grew by 3.04 percent and we kept the same level of NPL, 1.43 percent, in the first quarter, despite the impact of the pandemic.
With governments mutually blaming each other for the (economical) effects of COVID-19, how do you expect global cooperation to be affected in the long run?
I believe that we need to work together – and by that, I mean individuals, businesses, and nations – to learn to get better at things and utilize our learnings from the pandemic. Finger-pointing is not taking us any further.
Now is not the time to stop improving; instead, investments that make our world more adapt to the future are needed. Investments in 5G, big data, artificial intelligence (AI) and internet economics, bio tech – this is where our future lies. It is my strong personal opinion that we will damage people’s lives and ruin companies if such investments are not being made. The greatest challenge on the way there, is that currently there is too much political noise that needs to be overcome fairly quickly so we can design a desired future together.
ICBC in China has, for example, continued to make huge investments in fintechs for many years. We have accelerated the strategic transformation towards a ‘smart bank’ and optimized the research and development model by establishing two specialized subsidiaries in 2019 – ICBC Information and Technology Co. Ltd and a fintech research institute. As the crisis has shifted demand and sales to online channels even further, it is where we locate future innovations to emerge.
Which forms of loans for private and corporate clients were offered to overcome the crisis, which other measures did ICBC take to ensure business continuity for its clients? How do you outline ICBC’s current and future ambitions in Austria?
We’ve commenced business in Austria just one year ago, focusing on corporate and financial institution clients. With our prudent development strategy, we managed to obtain high quality clients – even the current COVID-19 crisis did not lead to any hardships in terms of cash and liquidity management. Consequently, no subsidized loans were provided from us to our clients. Albeit seeing some slowdown and increased prudence, we were able to remain and further strengthen the relationship with our clients. Staying in close contact with our clients was paramount in this situation.
In general, we support Austrian companies with already ongoing business in China as well as companies seeking to invest there. Besides funding options, we provide comprehensive service packages to Austrian clients for full support. Our aim is to leverage the ICBC group’s resources, especially in China, in order to help our clients do better and lasting business. Moreover, we also provide services for Chinese companies establishing a presence in Austria, where we support our clients with guarantees for manufacturing plants. We are delighted to see increased interest of Chinese companies in Austria.
ICBC in Austria functions as a bridge to bring our two cultures closer together – which is, among other efforts, why we provided an Austrian governmental institution with an interest-free loan to promptly purchase medical equipment in the wake of the COVID-19 outbreak. Doing so, we see this as our duty and obligation if we want to excel in social responsibility.
ICBC Austria kept a sound operation since last year, and we expect continuous growth in the future. ICBC in Austria is, besides further fostering Chinese-Austrian cooperation, also developing a CEE hub for the ICBC group. This, too, shows that we value the uniqueness of Austria.
If you were to give your Austrian clients some strategic advice, what would that advice entail?
First, I strongly believe that not only our clients, but any business with global presence or reach, needs to review the pre-COVID-19 investment plans and adjust them in a way to support business resilience and agility. Furthermore, product strategy and product mix need to be aligned with changed consumption behaviors and potentially lasting altered consumer needs. This is also what we are looking at when re-evaluating our clients. Finally, some developed nations currently face the discussion of potentially bringing back production to a company’s home country, especially in the light of dependencies when importing goods. However, I believe this idea of ‘home-sourcing’ needs to be evaluated thoroughly. While I agree that especially the first quarter of this year has shown that some industries were highly affected by disruptions in international trade and supply chains, reversing all these achievements of globalization is not the right answer either.
Both, global trade chains and supply chains have been changing for hundreds and thousands of years. The layout and distribution are based on the optimal choice by all participants in a long term rather than in one day. Besides the fact that nations need to be able to stand with each other in times of global turmoil, no nation will either have the capacity of a full chain, the consumer spending power nor the required natural resources to return to mere local production and burden the cost of it. The nations are not likely to become isolated islands. I suppose the improvements to trade, that were overdue, and more resilient supply chains will take place.
Which positive developments and learning for the future do you see as an outcome of this crisis?
There are three points that come to my mind. First, I sense that China will show the best performance globally this year. While the Chinese economy saw a GDP decline of -6.4 percent in the first quarter, the economy has shown to be recovering since May. Some indicators have been improving, including exports, which grew by 1.4 percent in comparison with May 2019, showing the resilience of Chinese economy. The IMF forecast predicts a GDP growth of 1.9 percent in 2020 and an even stronger rebound of economic activities in 2021. I believe this will not only benefit the people in China but will also be essential on a global scale, as China would then support the international community.
Second, I am worried about the economic performance of Europe and the uncertainty factor in the US. For Europe, a key takeaway is the need to find ways to build up resilience and strength. Europe has a marvelous economic foundation. However, Europe also needs to find new ways to open up and modernize timely in the new environment – it needs to get its dynamic back. Such advancement can only happen if you go outside, try new things, and let non-business activities not be involved too heavily. The goal should rather be to build a fast lane for modernization.
Which brings me to my final point, for which I think that especially Austria has the potential to make the crisis worthwhile by finding a mix of tradition and modernity to enable a new future. Regarding the Austrian government, I expect that it will open up to establish a digital economy and attract needed investments.