Weakened by the economic slowdown, four banks in central Henan province have suspended all cash withdrawals since April, taking thousands of small savers by surprise. The banking sector in rural areas in China is being hit hard by the central government’s policy to contain the housing bubble and indebtedness in the world’s second-largest economy. Henan’s banks in turmoil are part of a larger set of small banking institutions affected by liquidity and management problems. Panic quickly gripped the thousands of customers of the four offending banks in a country where savings are crucial.
Images of demonstrations in China are so rare that those broadcast in recent days on social networks are enough to understand the gravity of the situation. On Sunday July 10, at 5 am, several hundred demonstrators gathered in front of the branch of the People’s Bank of China in Henan province. The signs “Give back my deposits” or “We want our money back” are carried by people of all ages who have not had access to their savings since April. In May and June, people had already taken to the streets to demand control of their bank account and denounce the reaction of the local authorities whom they accuse of violence and complicity with the banks.
In total, nearly 6 billion euros were blocked in four Henan banks at the beginning of April in response to fraud. The private company Henan Xincaifu Group Investment Holding, led by Yi Lu and which owns shares in the four banks splashed by the scandal would be at the origin of the massive fraud according to the Chinese banking financial authority. The scam was based on a number of front companies funded by employees of the four partner banks. The latter offered customers to invest part of their savings in assets with a very high return on investment or directly diverted public funds via sites created by the Henan Xincaifu Group Investment Holding.
A limit of 7334 euros, initially
After the first demonstrations, the Chinese Central Bank also opened an investigation to determine the responsibilities and especially to reassure other savers elsewhere in the country who could be worried. In a report published on July 10, the research group Enodo Economics describes that “the current problems faced by small banks are unlikely to lead to a collapse of the banking system”.
After these demonstrations dispersed in violence, the authorities had assured that some depositors could recover part of their money within the limit of 7,334 euros at first. “The next step will be the advance of funds for customers with more than these 7,334 euros” of savings in frozen accounts, the banking and insurance regulator told state media on Sunday, without however, specify the timetable.
So far, only a handful of injured savers have been able to partially recover their money, according to group conversations on the WeChat social network. Some have complained of being unable to complete the procedures online, due to technical problems with the application. Wronged savers have accused the authorities of inaction, even of collusion with these banks.
To prevent rallies, the Henan authorities were suspected for a time in June of having turned the health passes of a certain number of demonstrators into red, making it de facto impossible to travel.