Debt is a dirty, four-letter word that is rarely talked about in Chinese Communist Party circles.
But that is about to change as the fallout from the Covid-19 pandemic and President Xi Jinping’s “zero-policy” percolates through the world’s second-largest economy.
Before the lightning spread of the virus, massive borrowing fueled rampant growth in China. Danger signs in the financial and property sectors were simply ignored.
Now, they are becoming too big to write off as unemployment soars and consumer confidence evaporates.
“With many of its cities facing pandemic-related restrictions, China’s economy is struggling. That has heaped pressure on poorly run companies and laid bare dodgy lending,” The Economist reported back in May.
“A crisis in the property sector appears to explain at least some of the problems. Bank runs and other signs of distress at small lenders are [other major problems],” it pointed out.
“Those in trouble often have relations with land developers and other firms that are far too cozy,” The Economist added.
Since then, the situation has only deteriorated. A major financial scandal triggered mass protests at the weekend in the Henan province capital of Zhengzhou.
- At least 1,000 disgruntled depositors surrounded a branch of the People’s Bank of China, demanding action after their “savings” were frozen in May.
- That is a fraction of the estimated 400,000 customers that are believed to have been blocked from withdrawing their money.
- In what is rapidly becoming a financial scandal, at least six rural banks in Henan and neighboring Anhui province are reportedly involved in the controversy.
- High-interest accounts totaling up to 40 billion yuan or US$6 billion could be at risk.
- Amid a social media frenzy, videos emerged on Sunday of peaceful protesters being beaten by security services.
Between the lines: Before the violence erupted, videos showed “people lining up in front of the PBOC office, holding banners that read, ‘No deposits, no human rights’,” the South China Morning Post stated.
Down with corruption: “There were also chants of ‘We are against Henan government’s corruption and violence’, and ‘Henan banks, give me my money back’,” the SCMP said.
Delve deeper: In April, customers were told their savings had been frozen. Later, media reports emerged that the banks’ parent company, Henan Xincaifu Group Investment, was being investigated by the Public Security Bureau.
No-go area: “Last month, Zhengzhou authorities even resorted to tampering with the country’s digital Covid-19 health-code system to restrict the movements of depositors and thwart their planned protest, sparking a nationwide outcry,” CNN reported.
Big picture: Liqian Ren, the director of Modern Alpha and host of China of Tomorrow, tweeted that “the background” to protests was “complex.” She admitted it was “important to see how this gets sorted out legally” because it was “another example” of “how central and local” governments were “at odds on who” was “responsible.”
China Factor comment: The chill wind of turmoil has swept across China’s economy. Lockdown protests, uproar over the collapse of property giant Evergrande and a banking furor have further illustrated the risks facing President Xi’s regime.