The first payments will be sent to customers with a total of less than 50,000 yuan ($7,445) deposited in a single bank, they said. Separate arrangements will be announced in due course for customers with more than these on their accounts, the authorities added. Rural banks have not yet given a clear explanation as to why and for how long the funds will remain frozen. In May, the national banking regulator said a major shareholder of Henan banks was responsible for illegally soliciting money from savers through online channels. The repayments will be handled by two other banks, but regulators did not say where the funds would come from. The announcements come after a mass demonstration on Sunday in the city of Zhengzhou, Henan province, was violently broken up by the authorities. It was the biggest protest yet by depositors, who have been fighting for months to recover their frozen savings. A 45-year-old businessman from Wenzhou in eastern Zhejiang province told CNN Business last month that he has been unable to access a single penny of his family’s $6 million life savings. Runs on small Chinese banks have become more common in recent years, and some have been accused of financial wrongdoing or corruption. But experts worry that a much bigger financial problem could be looming, caused by the fallout from a real estate crash and rising bad debt related to the Covid-19 pandemic. Up to 400,000 customers across China were unable to access their savings at rural banks in Henan and Anhui provinces, according to an estimate in April by Sanlian Lifeweek, a state-run magazine. That’s a drop in the ocean of China’s vast banking system, but about a quarter of the industry’s total assets are held by about 4,000 small lenders, which often have opaque ownership and governance structures and are more vulnerable to corruption and a sharp economic slowdown . Police in Henan announced on Sunday that they had arrested several suspects, accusing them of using rural banks to illegally seek public funds since 2011. Despite the police action and the move to repay some depositors in the coming days, analysts warn that the crisis may not be over yet. “The situation is still evolving,” Betty Wang, senior China economist at ANZ, said in a note to clients on Tuesday. “Despite the small size of the assets involved, the social impact of the incident could be significant if not handled properly. It could also trigger another round of tighter regulations,” he said, adding that Beijing could start a new round investigations into electronic banking, village banks or “potential local corruption”.
Not everyone will be helped
Monday’s statements are the first pledge by Chinese authorities to repay the frozen funds. But many customers have far more than 50,000 yuan stuck in these banks, Wang said, and remain in the dark about the future of their life savings. The plan has other exclusions. Payments will not be made to customers who deposited funds with banks through “other channels with high interest rates” or who violated laws and regulations, authorities said. But they did not provide details, leaving the complaints of many victims apparently unsolved. In the Henan and Anhui cases, Chinese state media reported that the savings products were marketed to customers through online platforms linked to or owned by giants of China’s tech scene such as Baidu. (BIDU) and JD.com. (JD) In China, local banks are only allowed to take deposits from their domestic customer base, but it has become common in recent years for many small banks to partner with online platforms and attract capital across the country. In early 2021, Beijing banned banks from selling deposit products through online platforms, fearing the rapid expansion of the fintech sector could increase risks to the wider financial system. But savers CNN spoke to say they were told by banks that the deposit products were legal and protected by the deposit insurance scheme. “If the incident is found to be financial fraud, or if the affected accounts are not strictly savings deposits, then they may not be under the protection of the deposit insurance system,” Wang said. In China, deposits of up to 500,000 yuan (nearly $75,000) are guaranteed in the event of bank failures, but if a government investigation finds that those cases involved “non-compliant” transactions, people could lose everything. The social discontent that arose from the incident could be a major problem for the government. The most affected are low-income farmers who had deposited almost all their savings, Wang said. “They see banks as the safest place backed by sovereign credit. Mishandling the issue could lead to social unrest and threaten stability,” Wang said. “This may be particularly sensitive in the wake of local lockdowns and ahead of the 20th Party Congress,” he added. — CNN Bureau in Beijing, Jorge Engels in London and Nectar Gan contributed to this report.
