The Cause of Protests in China Over Restricted Bank Accounts

The Cause of Protests in China Over Restricted Bank Accounts

It’s improbable that China’s banks were spared from the volatility in the country’s real estate market. Nevertheless, growing demonstrations by depositors in Henan province, whose life several banks froze savings in April, and the rigor with which the demonstrations were put down are warning signs that something is wrong with the nation’s financial systems.

Introduction

In response to outrage over a financial crisis that has shown the weakness of the nation’s banking system, unidentified security officers in China’s central Henan province brutally dispersed a rare large-scale demonstration. In the interior province of Henan, thousands of Chinese bank depositors have fought with police over the freezing of their accounts at neighborhood banks.

According to media in Hong Kong and other cities, the depositors reportedly met on Sunday to press local officials for action. Following the suspension of cash withdrawals by four neighborhood banks in Zhengzhou, action was taken. Protesters were yelling for their funds to be returned.

Police who had been sent in to remove them got into a fight with them. There were several injuries. This kind of demonstration is unusual in China. The four banks have halted withdrawals since April due to system maintenance. Some depositors stormed the banks as a result of this.

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Information Regarding the Bank Protest

A series of rallies against four regional bankers in the province of Henan in 2022 is being called the “Henan Banks Protests” due to alleged financial misconduct. Depositors have staged several rallies in Zhengzhou, which serves as the provincial capital of Henan, over the preceding two months. In China, there are about 1,600 rural banks as of 2022, distributed throughout 31 provinces, making up around 36% of all banking financial institutions there. The People’s Bank of China reports that as of the second quarter of 2021, 122 rural banks were high-risk institutions, accounting for around 29% of all high-risk institutions.

Reason Behind Blocked Accounts

To “upgrade their systems,” four rural banks in the Henan province stopped allowing clients to withdraw cash in April 2022. As a result, numerous clients of the four banks sought to withdraw their money in large quantities, but thousands were denied access to their accounts, leading to a bank run.

Later, however, it was discovered that Sun Zhenfu, the principal shareholder of the banks, had already been detained by the government in March for “serious financial crimes” and that, according to a CBIRC investigation, a private investment firm worked with the banks to attract public funds through online platforms fraudulently.

Yu Zhou Xin Min Sheng Village Bank, Shanghai Huimin Country Bank, and Zhecheng Huanghuai Community Bank froze all deposits on April 18 while stating to customers that they were upgrading internal systems. These left businesses unable to pay employees and individuals locked out of savings.

The three banks in the central Henan province of China have frozen at least $178 million in deposits but have not stated why or how long. Since then, the banks have not released any more statements.

The Possibility Of Bank Failure

These seemingly little bank demonstrations have greater importance, as evidenced by the authority’s aggressive crackdown on depositors. According to estimates, China’s financial situation may not be in good shape. Multiple developers defaulting on their debts has already caused the real estate market in China to implode. Developers are striking barter agreements and selling homes in exchange for crops as down payments since the situation is so bad. According to reports, the properties were selling far less than the market value of the watermelon and garlic they exchanged for. The frantic barter dealings demonstrate the pervasive issue in the real estate market as the authorities put a halt to that.

The banks allegedly exploited their marketing platforms to advertise interest rates that couldn’t be sustained and entice new clients. These inflated rates were in contrast with China’s slowing economy, which was brought on by ongoing lockdowns due to the country’s strict “zero COVID” policy, rising energy prices, droughts, and floods. The favorable rates did not take into consideration the dire economic outlook.

Protesters Fury Over Frozen Accounts

In a spreadsheet that was made public, depositors from the southern Zhejiang province self-reported 1.2 billion Yuan ($177.55 million) in frozen funds divided among the three banks.

The cost might total $1.5 billion, according to a report in the journal Caixin on April 30. This is because the banks have clients all around China. The protests had escalated in magnitude and regularity over the previous few weeks. The one on Sunday when depositors entered Zhengzhou city from the outside was the biggest. Notably, this was the biggest demonstration in China since the Covid-19 epidemic.

There have reportedly been demonstrations in other provinces as well. The crowd of men that arrived on the scene beat and scattered the protestors in a nation that does not tolerate dissent. Many demonstrators carried images of former Chairman Mao Zedong. They flew Chinese flags, showing that their complaints are mostly against local officials, and they want the central government to solve them.

Interrogation By The Government  On The Matter

The incident has shaken Chinese regulators. According to the Chinese business publication Caixin, which cited persons familiar with the situation, Henan’s Provincial Commission for Discipline Inspection initiated a specific campaign aimed at rural lenders when it was first disclosed in April.

According to Caixin, the investigation revealed how the Kincaid Group came to be responsible for more than 10 billion yuan (£1.25 billion) in non-performing loans to the Henan rural credit system. Henan’s anti-corruption agencies also said that at least three officials were under investigation for the matter. Many people, though, weren’t persuaded that their loss should solely be attributed to a select few people.

Authorities Resisted Protesters

Before the incident on Sunday, Zhengzhou officials had devised creative tactics to discourage depositors from traveling to the city rather than using brute force. The Covid-19 status of depositors was reportedly tampered with, turning it red for individuals who held deposits in Henan banks, forcing them and their families into quarantine.

Its clients’ deposits were frozen in April by the New Oriental Country Bank of Kaifeng, Zhecheng Huanghuai Community Bank, Shanghai Huimin County Bank, and Yuzhou Xin Min Sheng Village Bank.

Conclusion

Customers of these institutions are anticipating the release of billions of Yuan in deposits. The majority of these folks are risking their whole life savings. Financial watchdogs in Henan declared they would reimburse banks for deposits under 50,000 yuan ($7,400) in an apparent effort to quell the demonstrators. Chinese officials have been shocked by the affair. Henan’s Provincial Commission for Discipline Inspection began a specific campaign aimed at rural lenders after it was initially disclosed in April.