Banking & Finance

Sick lenders

Bank scandal prompts ‘health code’ row


Green codes are preferred

In the 2008 movie The Dark Knight, Batman creates a virus that infiltrates every cell phone in Gotham, allowing him to spy on the city’s 30 million people. Over in China, mandatory jiankang ma, or ‘health codes’ on smartphones, have been used to battle against viruses, in this case the spread of Covid-19, of course. But following a controversial move from the Henan authorities to manipulate the health codes to quell a planned protest, concerns have been raised that the software – which collects information including health records, travel histories and data on contact between users ­– could also be abused for other means.

The smartphone app was introduced in early 2020 to generate health codes for people in areas threatened by Covid-19 outbreaks. Akin to the traffic light system, a green signal indicates that a person has been fully vaccinated and recently tested negative for the virus. Yellow or red flags suggest that the individual is an infection risk, however (perhaps by having close contact with someone already reported as infected with the virus). People with this status are barred from entering most public places.

That all seemed practical enough, given the infectious nature of the pandemic. But depositors in a number of small banks were shocked earlier this month to find their health codes were turning red for reasons that were nothing to do with virus concerns.

Since April, reports have been spreading that depositors around the country have found it difficult to withdraw savings from a group of rural banks based in Henan province. Some of the account holders took matters into their own hands, demonstrating outside the provincial offices of the CIBRC, the banking regulator, in Zhengzhou, Henan’s capital city.

Chinese media outlets then reported that almost 400,000 bank accounts holding nearly Rmb40 billion ($6 billion) could be affected by the crisis. Panic grew as the news spread in the newspapers and social media. Some bank customers then planned further protests but according to Phoenix TV, a Hong Kong broadcaster, many saw their health codes flash red as they arrived in Henan or even before they set off on their journey to get their money back. Members of a WeChat group set up by customers affected by the banking disruption also had their codes changed to red – meaning they were no longer able to travel freely in most cities.

The revelation quickly became a hot topic with netizens, triggering anger at the local government for abusing the health code system and stopping people from travelling. The public interest was so intense that the CCDI, the feared anti-graft watchdog, said it had started an investigation into improper use of the health codes, indicating that there are also concerns about corruption as a factor in the banking crisis.

CBN, a Chinese newspaper, reported that police in Henan have been investigating a local financial group called Xincaifu, which owns stakes in 13 rural banks in the province. The whereabouts of Xincaifu’s owner Lu Yi are unknown after he was named in another probe – an investigation into Cai Esheng, former vice chairman of the CBIRC, who was arrested on corruption allegations in February, the Chongqing Morning Post reported.

Born in 1974, Lu is said to have started out in his career two decades ago by winning a highway project in Henan. Using the project as collateral, he secured new loans and invested in a number of rural and regional banks.

The public security bureau in Xuchang city said this week that it had arrested a number of suspects over “complicated plots” and “long-standing crimes”.

Efforts were also being made to recover bank customers’ missing money, the authorities were at pains to point out.

It remains to be seen if investigators have acted quickly enough to restore confidence in the local banking system. But the wider collateral damage seems to be coming from the tarnishing of public confidence in the health codes that hundreds of millions of people have on their smartphones…

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.