Beijing — Savings opportunities by regional banks in central China seemed like a great discovery to 26-year-old businessman Sun Song. It is linked to his existing account at a large and reputable state-owned bank. Local banks also offer high interest rates, which seems to be an ideal place to park savings of about $ 600,000.
The bank then suddenly frozen his account this year, saying authorities are investigating potential fraud. “I’m borrowing money on my credit card and I have to repay my car loan,” he said. “I have two sons. They are all waiting.”
A financial scandal that has trapped Mr. Sun and thousands of people across the country could pose a serious challenge to the ruling Communist Party, which praises its ability to control stability and threats to it. The amount at risk is small compared to the Chinese economy, but it goes against the party’s core promise to provide a better future for its people.
It has become clear to the Chinese people how vulnerable their money is, even for transactions that are as routine as putting them in a savings account. As the economy weakens, fiscal problems become more sensitive, with China reporting the slowest growth rate since the coronavirus pandemic began last week.
Many are just as nervous, if not indifferent to the scandal, if not at all hostile. The crisis involved five local lenders, police say, could have been dominated by a criminal organization that illegally sent money to other accounts, a plan that began 10 years ago.
Authorities have largely refused to guarantee that the money will be returned, suggesting that some of the depositors are involved in the fraud. When Mr Sun and hundreds of other depositors gathered this month in protest in Henan, where the local banks in question are mostly located, they were physically attacked by a crowd of men while police officers were waiting. it was done. Since then, many protesters have reported being harassed by police.
“The government receives our taxpayers’ money and then beats us,” Sun said in a telephone interview before the authorities warned depositors about talking to the media. “My view of the world has been destroyed.”
Maintaining public confidence in the Communist Party is especially important this year, when Chinese leader Xi Jinping is expected to further strengthen his authority at major political conferences in the fall. But it’s already being tested by the economic slowdown that was created as part of the government’s radical campaign against the coronavirus and the crackdown on the once booming real estate industry. The bank scandal has exposed more systematic problems in China’s financial system, including potential corruption and weak regulatory oversight of regional banks.
“If they can no longer trust any bank and no longer trust the housing market, how would that affect people’s sense of security?” Zhiwu Chen, Professor of Finance, University of Hong Kong. “The degree of this anxiety shared by people is growing very rapidly. It is not good for social stability.”
The sensitivity of this issue was evident in the unusually large protests.
Depositors began complaining in April when banks in Henan and Anhui suddenly froze electronic withdrawals. Local banks have helped close the gap in financial services in China’s developing regions, but they are also vulnerable to corruption, experts said. Some financial institutions engage in overly risky lending practices to compete with large financial institutions.
Authorities haven’t said how much money has been frozen, but protesters claim the number is in the billions of yuan. Banks have attracted users from all over China (such as Sun, who lives in a southern city) through a third-party online platform and by offering unusually high interest rates.
After a few weeks of unresolved, some bank customers began to gather in Zhengzhou, the capital of Henan Province, for a series of protests demanding that regulators act more strongly.
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Immediately, authorities tried to silence them. The censor has shut down the protester’s messaging group. Local governments have banned depositors from entering public places by manipulating depositors’ mobile health codes, a digital indicator that China uses to track coronavirus infections. However, after the operation gathered widespread criticism, local authorities withdrew and protesters continued to gather, including July 10.
Many of the demonstrators presented their demands to the Communist Party authority as an appeal rather than a challenge. Chinese flag waving some hands. Others called on Mr. Xi’s “Chinese Dream” slogan and carried a portrait of Mao Zedong. They all encountered the same ferocity. A man in plain clothes began beating and kicking protesters.
Violent footage, watched tens of millions of times on Chinese social media, has caused widespread anger. Commenters said the government betrayed the protesters’ beliefs. The censor has blocked the trend hashtag, but the user has created a new hashtag.
Regulators continue to be angry promised To repay depositors last week — but only those who invested less than 50,000 yuan, about $ 7,500, the rest of the details will be announced later. They also said they would not repay anyone who used “additional channels” to get higher interest payments or suspected of dealing with “illegal funds.”
These provisions appear to be in favor of police announcements regarding the suspect’s gang. According to police, the gang’s plans included setting up an illegal online platform to recruit new customers.
Hangzhou eastern lawyer Van Ray, who has been working on fraudulent cases, said that those who unknowingly participated in illegal plans should still be entitled to repayments. But he admitted that in reality they may be almost unreliable.
“The other party is keen to consider it illegal because he doesn’t want to be held responsible. They described it in four or five different ways,” he said of the authorities. Even if depositors win the case for repayment, banks may not have enough assets to complete them, and it was unclear whether the state would make up for the difference.
Indeed, the scandal raised a broader question about who is responsible for the lost money, in addition to the suspicious criminals.
Professor Chen of Hong Kong said the county or village-level government had overwhelmed local bankers and led them to make high-risk or fraudulent loans.
Historically, the central government was prepared to bail out troubled banks and businesses, so the resulting losses were manageable, he said. But recently, the government has signaled that those eras are over, even though the deteriorating economy is putting more pressure on those same institutions. As a result, Professor Chen said, “We expect more regional banks to face the same problems as the regional banks in Henan Province.”
Hidden debt is most likely spreading throughout China’s financial sphere. The country’s seemingly unstoppable growth over the past few decades has encouraged speculative borrowing and lending behavior by everyone from online lenders to major real estate companies.
The government has sought to downplay concerns about a wider range of issues.Central bank of China Said last week 99% of China’s banking assets were “within safe boundaries.”
Still, he said it was up to the government to decide how to deal with both Henan and the undisclosed losses. Michael Pettis, Professor of Finance, Peking University. Authorities may allow financial institutions to default and hurt lenders. They were able to oppress the workers. They print more money and can lead to inflation. In the end, Professor Pettis said, “Someone has to absorb the loss.”
For Henan depositors, the fear is that it will be them.
Wang Xiaoping, a 39-year-old software industry employee from Hangzhou, said he had invested about $ 95,000 in one of the regional banks. But all she had to show was that she was attacked by a man in black in a Zhengzhou protest and her chin was injured. She tried to report her assault to the police, but they told her to go to another district, she said.
“I told the police, I’m going to die here,” she said in an interview on July 10.
