A 45-year-old entrepreneur asked him to call him Peter for security reasons. Originally from the eastern part of Wenzhou, he is only one of the thousands of depositors who have fought to reclaim savings from at least six banks in central China.
"I'm approaching my nerve weakness. I can't sleep," Peter told CNN Business.
When trying to access his account online, a statement appears on his home page telling CNN Business that the website is under maintenance and the service will be unavailable for some time. Told. After 2 months, these services have not been restored.
In China, local banks are only allowed to get deposits from their domestic customer base, but authorities say a "third-party platform" is funded by depositors outside the region. Says it was used to get. For example, in the case of Peter, his hometown is more than 700 miles from a bank in Henan.
"Police have filed a proceeding to investigate the problem," he added.
In recent years, small banks in China have become more frequent and some banks have been accused of financial fraud or corruption. However, experts are concerned that far-reaching financial problems are imminent, caused by fallout from the collapse of real estate and the surge in bad debt associated with the Covid-19 pandemic.
There is no official estimate yet for the total amount of funds that bank depositors cannot withdraw. CNN Business has not received comments from local police or national bank regulators.
This is a downturn in China's vast banking system, but about a quarter of the industry's total wealth is more vulnerable to corruption due to uncertain ownership and governance structures. It is owned by about 4,000 small lenders. Experts say, and a sharp economic slowdown.
"The extent of the bank scandal that bankers use and steal money from depositors is alarming and only the tip of the iceberg is exposed," said Frank Sea of the University of South Carolina. The professor said. Aiken studies Chinese business and economy.
“As the Chinese economy slows further, fiscal shortages worsen, and debt repayments become widespread in Chinese companies, especially in the real estate sector, bank runs can become more frequent and larger. " He said.
Another protest was planned in June. However, according to six people spoken on CNN and social media posts, when depositors arrived in Zhengzhou, they were surprised that their health code (which was green at departure) turned red. People who are usually infected with Covid, or who have a red code assigned to someone who is considered by the authorities to be at high risk of infection, will soon become a persona non grata.
They are banned from all public places and transportation and are often subject to government quarantine for several weeks.
What is behind the problem in Henan
In Henan, the Bank of China Insurance Regulatory Commission has a large investment in all four private investments. Lender who blamed the company.
Last week, police in Henan Province said a criminal organization led by an investment company manager "suspected of committing a serious crime using a village bank." Police say several suspects have been arrested.
Henan NewFortune Group does not have a website. CNN tried to ask the company for comment by phone or email, but it was unsuccessful. The company has not issued an official statement and is believed to have been revoked.
Later on Monday, four banks in Henan announced that they would begin collecting information from customers affected by the shutdown of their online trading system. The move was requested by financial regulators and banks added another statement to their website without further elaboration.
It's almost uncomfortable for banking customers. If a bank goes bankrupt, a deposit of up to 500,000 yuan (about $ 75,000) is guaranteed, but that's not enough for some people like Peter. If a government investigation reveals that savings are a "non-compliant" transaction, you can lose everything.
"I'm very worried about how they (authorities) handle our money," said Ye, who asked CNN Business to use only his name. You are a 30-year-old technical worker living in Dongguan City, Guangdong Province, about 1500 km (900 miles) from the bankused in Henan Province. He stated that he had a total deposit of 160,000 yuan (about $ 24,000) worth.
"The bank told me that deposit products are legal and protected by the deposit insurance system," he said. "We just want to get the money back." Not responding to the request.
Risky Debt
In early 2021, Beijing banned banks from selling deposit products through third-party online platforms, FinTech A wider financial system with rapid expansion of the sector. The People's Bank of China called such practice "illegal financial activity." In
, why seems to be a small local bank in Henan, like you living on the other side of the country, ignoring the ban and raising deposits from savers.
China's national banks and insurance regulators say that a third-party online platform was able to circumvent these geographic restrictions and grow their business nationwide.
These platforms — Baidu's financial companies DuXiaoman Financial and JD Finance — respond to request for comment I have not.
"Central government regulators do not seem to be able to enforce regulations aimed at preventing this kind of run," said Frank Sea, a Chinese economic expert. Said. He added that corruption is "rampaging" at local financial institutions.
"Perpetrators, such as those who steal millions from depositors, are often protected by accomplices in senior government and bank management," Xie said.
"The main problem is that China's financial system has expanded too rapidly compared to the size of the economy over the last decade," said Logan Wright, director of Chinese market research at Rhodium Group. I am saying.
According to government statistics, the banking sector in China has grown six-fold since 2008, with total wealth in excess of $ 50 trillion.
According to experts, the financing structure of small lenders makes them more risky.
Compared to major banks, they rely on deposits to raise funds. Many of them offer high interest rates to attract commercial and interbank deposits. However, the slowdown means that borrowers are struggling to repay banks, making it difficult to provide the returns they have provided to savers.
"Most of China's small and local banks' debt financing structure remains vulnerable to deposit execution, lender attention, poor economic performance and rising unemployment. Is likely, "said the former Chief Economist of the China Center at Oxford University and UBS.
Deterioration of financial condition
The Henan crisis came when public confidence in China's banking system had already diminished.
Over the last decade, Beijing has been involved in "shadow banking" activities (meaning unbooked loans that are not regulated by financial institutions) due to concerns that most of the funds have been diverted to real estate developers. Has been suppressed. Municipal infrastructure projects lead to spikes in debt and increased financial risk.
In 2019, China took control of Inner Mongolia-based Baoshang Bank, citing the serious credit risks posed by lenders.
This is the first bank seizure in more than 20 years in China, and the lender has been declared bankrupt.
The following year, a small lender had at least five run on the bank. This was mainly caused by public fear following reports of bank financial difficulties and anti-graft investigations into bank executives.
"Financial institutions are still working on some of the losses incurred, especially in the northeastern, central and western regions of China, where shadow banking activity has expanded most rapidly in the last decade." Wright said.
To make matters worse, "financial institutions are also exposed to new credit risk due to the continued slowdown in the economy during the Covid-19 pandemic," Wright added.
Spillover
Investors are closely watching the government's investigation into the run on Henan province. Analysts are measuring the potential for spillover to other banks.
"The economy is the main reason affected banks may be experiencing difficulties, and given the real estate market and the fate of real estate prices, other banks, perhaps even larger ones, There's a good chance you'll be affected, don't lose your balance, "said Magnus of Oxford University.
"Given that real estate as an asset class can be at risk for years, this can have a multiplier effect," Magnus said.
Real estate loans account for nearly 30% of the balance of loans to Chinese financial institutions.
Analysts are not yet worried about the financial crisis. The PBOC is likely to ensure the protection of larger and systematically important banks.
However, the frustration caused by the run on the bank can be a major concern for the government.
"Now (authorities) can prevent you from petitioning by putting digital shackles directly on you, also known as giving you a red code," said a platform like Twitter in China. A comment on Weibo was mentioned.
Dozens of depositors were taken to a quarantine hotel guarded by police and local civil servants and sent to their hometown train the next day. According to witnesses and online posts, others have been "quarantined" in several other parts of the city, including the university campus.
"If this causes many people to lose their lifetime savings, more incidents like this occur, and the run on the bank faces government crackdowns, social unrest will be the only end result. Let's say thank you.
— CNN's Beijing offices Nectar Gan and Wayne Chang contributed to this report.