Held to account

Protest by depositors in Henan

Is it a sounder investment to put money into a bank’s savings account or buy the lender’s shares? Take ICBC: China’s largest bank by market value offers 1.75% interest rates on one-year term deposits, according to its website. But the lender’s Shanghai-listed shares are trading (as of this week) at a dividend yield of 6.49%.

Many in China still prefer the first option, which is presumed to be risk-free. But the problem is that bank savings may not be entirely safe after all – as a series of rare public protests over frozen bank accounts has been highlighting.

Since April there have been media reports that depositors have been finding it difficult to withdraw their savings from a group of rural banks based in Henan province. Some of the account holders then took matters into their own hands, staging demonstrations outside bank branches and even turning up to protest at the provincial offices of the banking regulator, the CBIRC.

As anger spread local authorities tried to suffocate the unrest by manipulating depositors’ ‘health codes’ through the mandatory apps that have been tracking infections during the Covid crisis. Hundreds of angry depositors found that their codes had suddenly turned red, preventing them from visiting public places (to protest) or even travelling to Henan.

The Henan government has acted quickly to quell public anger over the inappropriate use of the health codes by sacking or reprimanding those involved. A number of other suspects have also been arrested over “complicated plots” which led to bank accounts being improperly frozen.

But these efforts have been not been sufficient to restore broader confidence in the province’s smaller lenders. The widespread support being shown for the protesters on social media has also encouraged them to fight for their rights. On July 10, hundreds of people gathered in front of the Zhengzhou branch of the People’s Bank of China to demand their money back. Knowing that they now had an audience in the foreign press, some of them hoisted up huge banners in English reading: “Against the corruption and violence of the Henan government”.

The demonstration then turned violent after a group of security guards – their identities unclear – tried to clear the crowd, leaving a number of the depositors bloodied.

Footage of the clashes was censored across China’s social media platforms. But in an unexpected turn the depositors turned to the weibo account of the US embassy as a new (and unblocked) forum for getting out their message and pleading for international media outlets to report further on the crisis.

Police have been investigating a local financial group called Xincaifu, which owns stakes in 13 banks in Henan. The whereabouts of Xincaifu’s owner are unknown, although he has also been named in another probe – an investigation into Cai Esheng, a former vice chairman of the CBIRC, who was arrested on corruption allegations in February, the Chongqing Morning Post reports. The banks in the scandal attracted depositors, sometimes from outside the province, by offering high interest rates through middlemen and third-party lending platforms. Regulators banned many of these tactics last year.

Reports from the province are that the banks have suspended their deposits and withdrawal services because of the investigation into Xincaifu. But an academic from Shanghai warned the South China Morning Post that there was a risk of a wider erosion in trust in the banking system. “The implications could be huge. People are asking what about the other local banks?” he warned (the SCMP kept his identity anonymous).

About 3,800 rural lenders currently account for 12% of the banking industry’s assets, according to official data. Standards at some of the smallest 1,651 village lenders are the loosest, says Caixin magazine, where there’s more scope for officials to turn a blind eye to unscrupulous activity.

China introduced a deposit insurance scheme in 2015, although it’s unclear how much of the Rmb40 billion ($6 billion) said to be missing in Henan might be covered by the scheme. Local regulators said individuals with deposits of Rmb50,000 or less will be getting refunds starting this week. But the arrangements for depositors with bigger bank balances are yet to be announced.

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