Almost $6 billion is the total of frozen funds in four rural banks in the central province of Henan, China. 

The bank crisis was so significant that protests erupted and soon turned into violent clashes.  

China’s banking regulator said last Thursday, August 11, that it had made advances to rural bank depositors in four batches. The advance payment covers 436,000 households totaling up to $2.6 billion.

Moreover, the next day, investigations began into two more officials from the Henan financial supervision system. So up to now, eight officials have been put under investigation.

However, there are four questions about how Beijing deals with this crisis. 

Question 1: Are officials under investigation, not the main culprits?

On July 24, Li Huanting, a first-level inspector of the Henan Supervision Bureau of the China Banking and Insurance Regulatory Commission, was investigated for “suspicion of serious violations of discipline and law.”

Since last month, eight officials have been under investigation in this bank scam. Many of them are in charge of supervising “small and medium financial institutions.” 

But none are above the department level within the regime’s system—all are minor officials.

With a serious bank fraud case like this, covering billions of dollars and hundreds of thousands of people for more than ten years, it does not make sense that a bunch of officials below the department level could do that.

Question 2: Why is the main suspect still not on the wanted list?

Lu Yi is the alleged mastermind and controller of Henan New Fortune Group, one of the banks’ shareholders. Since the crisis broke out, he safely fled abroad after being put on the investigation list by the public security department. But, strangely enough, the authorities have not issued a warrant for his arrest.

When people have fled overseas, you can’t catch them, which can be understood. But why was a warrant not issued? At least it would help if you put them on the wanted list to show your attitude.

Question 3: Is the funding gap almost $6 billion?

According to the official report, the advanced fund is more than $2.66 billion, making up 66% of total liabilities. Accordingly, the actual funding gap should be about $4 billion. 

But the actual debt owed to depositors, as reported previously, is almost $6 billion, far exceeding the $4 billion according to the official report.

There is another set of numbers that do not match up. Four hundred thirty-six thousand households have been paid in advance, making up 69.6%. So there would be 190,000 households that have not had money advanced. It was estimated that the funds not yet advanced amount to $1.37 billion, so the remaining average is only $7,200 per household.

According to the advance payment plan, people with deposits below $7,300 are the first to be paid. Then it gradually increased in four batches, until the batch of depositors with $22,000 to $37,000 in funds, and finally to the biggest depositors with tens of millions of dollars in accounts. So, why is the average remaining unpaid less than $7,300?

Until now, officials have never published the overall scale of the funding gap of the village banks. So why can’t they tell the public?

Question 4. Where did the advanced funds come from?

From the beginning, a circular from the China Banking and Insurance Regulatory Bureau—China’s banking regulator—has clearly stated that this was an advance payment to bank customers. It is neither withdrawal nor compensation.

What is the source of this “advance” payment? The report mentioned it earlier, saying that the public security organs had seized the funds and assets while handling the case. But this is not possible.

Because these financial criminals have worked hard for several years to transfer funds, they had to spend money along the way to bribe the supervisors and squander it for themselves. Having so much money left there waiting for the police to seize it is impossible.

Second, the assets seized during the case could only be disposed of after the court’s trial and final judgment. The case has not yet entered the trial stage. How can the funds be directly disposed of in advance?

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