The Impact of Inflation on Commercial Banks in China

Abstract

Abstract: Inflation is an important issue that affects the profitability and operational stability of commercial banks. Conducting an in-depth analysis of these influences while putting forward effective countermeasures can be beneficial to ensuring the stable operation of commercial banks. This paper focuses on the period from 1937 to 1949 where the Second Sino-Japanese War and the Chinese Civil War, which had contributed to severe inflation and disrupted the banking sector, and the formation of the modern Chinese banking system. This study critically examines the main causes behind inflation, evaluates their implications on the functioning of commercial banks. It also assesses both the positive and negative impacts on commercial banks, pointing out the challenges commercial banks face during different periods. For example, the market turmoil and policy changes in the 1940s have made it difficult for commercial banks to retain normal operation; therefore are suffering from making profits and inflation has made the situation even worse. In addition, this paper provides short-run and long-run strategies for reducing the negative effects of inflation, with consideration of Chinas unique economic structure and historical context. By integrating insights from historical and contemporary perspectives, this analysis aims to offer valuable views on the micro and macro impacts inflation could bring.