The Discontent Is Growing in China, As Thousands of Customers Have Had Their Bank Assets Frozen.
Protesters want $6 billion in deposits unfrozen.
“Henan banks return my deposits.”
Hundreds of people demonstrated on Sunday in front of a branch of the Central Bank of China, in Zhengzhou, the capital of the Henan region.
At issue: a suspension of bank withdrawals, effective April 2022 in the four banks of Henan, which prevents hundreds of thousands of people from accessing their savings.
A dramatic situation, which already provoked demonstrations in May and June 2022, in a country where the population is traditionally reluctant to take to the streets. As in the two previous demonstrations, the police had to use force to disperse the demonstrators, who were denouncing the collusion and corruption of local authorities.
Massive fraud
In total, nearly 40 billion yuan (6 billion dollars) are currently frozen. The reason for this asset freeze is a massive fraud involving local banks and private actors.
An investigation by the China Banking and Insurance Regulatory Commission (CBIRC), China's banking watchdog, established that the private investment company Henan Xincaifu Group Investment Holding Co, which holds shares in the four banks, relied on internal bank employees to embezzle public funds via online platforms.
In June 2022, local authorities arrested several suspects with links to Henan Xincaifu Group and froze their assets, without giving further details on the number or identity of those arrested. The case reignites the debate around China's banking sector, already strained by the economic slowdown and real estate turmoil, both symbolized by the financial woes of the Evergrande giant.
“It's not clear that the four banks in question have any links to Evergrande,” says Xin Sun, an expert on Chinese economic policy at King's College London. “But the problems they are having are associated with the real estate downturn.” The suspected frauds could indeed be a consequence of the difficulties some banks are currently facing.
While China has been on a hunt for over-indebted property developers for the past few years, the shocks are hitting rural banks harder. “Unlike domestic banks, local banks' assets are more exposed - directly or indirectly - to real estate development,” says Xin Sun. “When local real estate developers are in turmoil, it strongly impacts these banks.”
The banking regulator said Sunday that it would speed up checks on the four banks' customers and that it would soon announce a plan to address the problems. “The authorities are trying to keep the situation under control. But the main problem is who will pay to bail out the stressed banks,” Xin Sun said. In the meantime, customers will likely have to take their lumps.
Some reading
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