Tuesday, 14 Oct, 2025
Four rural banks in China's central Henan province, since April, have frozen millions of dollars’ worth of deposits
Last week, in China's Henan province, over one thousand angry bank depositors carried out massive street protest over freezing of their funds that dates back to April. The demonstration was among the largest China has seen since the pandemic. After Sunday’s protest, China’s banking regulator announced that customers – with deposits up to 50,000 Yuan – will start getting their money back beginning Friday. What led to the 40 billion Yuan (US$6 billion) cash crisis at these rural banks, and what it indicates about the Chinese economy?
Why are people protesting?
Four rural banks in China's central Henan province, since April, have frozen millions of dollars’ worth of deposits. The financial situation has arisen due to liquidity crunch, which is apparently prevailing for about two months now.
China’s rural bank problem
Rural commercial banks are unique to China’s state-dominated banking sector. According to the latest figures from the China Banking and Insurance Regulatory Commission (CBIRC), there are 1,641 rural banks in China.
However, in terms of size, they represent only 12 per cent of the banking system’s total assets, with most rural banks being small county-level entities. This is largely due to the fact that rural areas of China still account for more than 40 per cent of the country’s total population of 1.3 billion. Two-thirds of the rural population have incomes below US$5.50 a day.
However, this also makes them more vulnerable to local economic weaknesses. Their non-performing loan ratios (ratio of a bank’s bad loans to total loans) is significantly higher in rural banks when compared with that of their counterparts in urban areas.
The banking crisis
The banking crisis started in April, when depositors were unable to access their money in four rural banks in Henan, an important agricultural base. Initially the depositors were told they couldn’t access their funds because the banks were upgrading their systems, but it subsequently emerged that China’s authorities had started an investigation of allegations that a private investment company that had stakes in four small banks had colluded with bank employees to solicit funds via online finance platforms.
The banks involved reportedly offered interest rates as high as 9% while the country’s legal interest rate ranges from 3-4%. However, when the loan to real estate turned bad, the banks couldn’t return the money required to pay back the depositors with attractive high-interest rates. The suspected company behind the fraud owns over 100 shadow companies and controls at least 13 rural banks. At least 39 billion Yuan ($5.8 billion or Rs 46,162 crore) is believed to have been frozen wiping out life-time savings of more than 4 lakh customers.
The bank scandal has come at a wrong time for Xi Jingping. Within just few months, he is expected to seek an unprecedented third term at a key meeting this fall. The massive protest and police crackdown is not a good sign for him.
