“The scope of the bank scandals where bank officials embezzle and steal funds from depositors is alarming, and what is exposed could only be the tip of the iceberg” – Frank Xie, professor at University of South Carolina Aiken/ CNN.


“I felt like being slaughtered,” said Xu, a 39-year-old who drove overnight in mid-May to negotiate with the banking regulator in Zhengzhou, the capital of Henan. As reported by Financial Times, having already lost trust in the system, the man had withdrawn all of his deposits from 10 other small banks with an annualized interest of over 4%. 

Xu’s response to the recent cash crisis in China’s banking system is understandable. The sudden freeze of cash withdrawals by four lenders in Henan on April 18 sparked the crisis, which has raised serious concerns over the financial health of the country’s smaller banks.

Desperate depositors 

Outraged depositors have protested outside Yuzhou Xinminsheng Village Bank, Shangcai Huimin County Bank, Zhecheng Huanghuai Community Bank, and New Oriental Country Bank of Kaifeng, where withdrawal problems take place. As stated in Chinese reports, the first three banks have frozen a total of $1.49 billion in deposits, which was believed to have affected one million customers.

According to Reuters, these three banks told customers that they were upgrading the internal system. However, since then, depositors said they had not made any announcements on the issue.

The latter’s fights to recover their savings have been going on for almost three months, which seemed to achieve negative results.

“I have no confidence [in the four banks],” said Li, who traveled from Shanxi province to join a protest. “Especially after my visit to Henan and it gave me the impression that the local authority would do everything to protect the banks. They treated us badly.” 

South China Morning Post reported Li claiming that local police “pushed around” the protesters with “brute force,” ordered them to remove videos and pictures from their phones, and even blocked them from entering the city.

“If the central government doesn’t intervene and only relies on the local governments and regulators to investigate these banks, they will continue to evade responsibility. I just can’t trust them,” Li said.

According to CNN, another protest was arranged in June. But when the depositors reached Zhengzhou, their health codes, which were green upon departure, had shockingly turned red. A red code is usually attributed to Covid patients or people regarded by authorities to be at high risk of infection. They are thus prohibited from all public venues and transport and often subject to weeks of government quarantine.

The cash withdrawal problem also occurred recently in Shanghai, where banks shut down automated teller machines (ATM) transactions, claiming a virus spread via cash. 

According to Financial Times, the past few years have witnessed a rise in bank runs among China’s 3,902 regional lenders. In 2019, authorities seized control of Baoshang Bank, a local institution in Inner Mongolia, citing “serious credit risk,” and its linkage to arrested tycoon Xiao Jianhua. Since then, the health of China’s smaller banks has been closely examined.

Central bank data as of December 2021 show that although such “high-risk” institutions represent just 1% of total assets in China’s banking system, bank runs have raised anxieties among regulators of potential risk contagion and social instability arising from the financial system. 

Direct causes of the cash crisis

  • Third-party online platforms 

In the case of Henan province bank runs, Chinese authorities blamed the largest shareholder of the four banks for illegally raising funds via online platforms and third-party systems in collusion with bank insiders, reported Financial Times

To bypass geographical restrictions and grow their business nationwide, local banks often market deposits through online channels such as the fintech arms of Baidu and 360 DigiTech. However, lenders in poorer regions are often incapable of creating enough interest income on loans to pay their promised rates, which aggravated their liquidity problems.

Consequently, in 2021 Beijing banned banks from selling deposit products via third-party online platforms, stated CNN. The news channel then raised the question of why small local banks in Henan were seemingly ignoring the ban and raising deposits from savers. 

  • Corruption

Frank Xie, a professor at the University of South Carolina Aiken who studies Chinese business and the economy, explained that corruption was “rampant” at local levels of financial institutions.

“Perpetrators such as the person stealing millions from the depositors often get shielded by accomplices in governments and in the upper-level management of the banks,” Xie added.

CNN noted that roughly 4,000 small lenders grasp about a quarter of the industry’s total assets. Experts say they “often have opaque ownership and governance structures and are more vulnerable to corruption.” 

  • Vulnerable funding structure

According to CNN, experts say that the funding structure of small banks makes them riskier. 

Small banks are more dependent on deposits for funding than big ones. So to attract commercial and interbank deposits, many offer high-interest rates. But economic slowdown makes it hard for borrowers to repay the banks, who may fail to deliver the returns they offered savers.

  • Economic downturn and unsustainable growth model

“As the Chinese economy slows down further, the fiscal shortage worsens, and the debt repayments become more widespread among Chinese companies, especially in the real estate sector, bank runs could become more frequent and on a larger scale,” said Frank Xie, a Chinese economy expert.

Further, in their June 2022’s Economic Update, The World Bank emphasized, “There is a danger that China remains tied to the old playbook of boosting growth through debt-financed infrastructure and real estate investment. Such a growth model is ultimately unsustainable and the indebtedness of many corporates and local governments is already too high.” 

Commenting on recent bank runs, Logan Wright, director of China markets research at Rhodium Group, also told CNN, “The core problem is that China’s financial system simply expanded far, too fast, relative to the size of the economy over the previous decade.” 

The regimes’ statistics show China’s banking sector has increased sixfold since 2008.

In China, even billionaires are not safe

It would be naive to think that only small savers or low to middle-income earners are affected by the recent cash crisis involving small local banks. According to economic theory, the wealthier are more capable of smoothing their consumption in the face of shocks. But under the rule of the Chinese Communist Party (CCP), even the super-rich are not financially assured. 

On April 15, 2021, in testimony before the U.S.-China Economic and Security Review Commission Hearing, Miles Yu, the former China policy adviser to former Secretary of State Mike Pompeo, revealed that in the past 15 years alone, at least 27 Chinese billionaires have been arrested, with charges ranging “from the bizarre to the absurd.” 

Yu spoke about the CCP’s harsh control over financial resources, which eventually endangers fortunate entrepreneurs.

A recent One Hundred Years of Truth episode cited the example of Sun Dawu, chairman of Dawu Group. He was arrested in 2020, charged with eight counts of absorbing public deposits, and sentenced to 18 years in prison. 

Dawu Group has more than 9,000 employees, $312 million in fixed assets, and an annual output valued at more than $467 million. But on April 15, 2022, Dawu Group was auctioned to “Baoding Ruixi Technology Co., Ltd.” by the Gaobeidian City Court at a low price of $102 million.

Even more strange is that Baoding Ruixi Technology Co. Ltd. was established on April 12, 2022, three days before the auction. The company is widely believed to be simply an official “white glove.”

So, what is the real reason why Sun Dawu was arrested, and his assets were plundered? It may be that he has significant influence and independent thinking and has made some remarks that displeased the CCP. For example, in May 2020, he expressed admiration for human rights lawyer Xu Zhiyong and others online, saying that they had given victims a glimpse of light, maintained a little confidence in the law, and lit up their hope of survival.

Root causes of Chinese people’s financial vulnerability

According to Dr. Wang Youqun, who once worked as an aide and copywriter for Wei Jianxing, a member of the CCP Politburo Standing Committee from 1997 to 2002, there are four reasons which are also the four major crises faced by the rich in China. These reasons, clarified in the recent One Hundred Years of Truth episode, can also explain the financial risks threatening the Chinese general public.

  • The CCP has never truly protected private property

Karl Marx, the “ancestor” of the CCP, opposed private ownership and advocated public ownership. Marx’s theory is considered to be the theory of the proletariat. The proletariat is a class without property that wants to seize power. But what if it has no money? From the history of the CCP, the practice can be summed up in one word—”robbing.”

Today, the CCP itself admits that the private economy contributes more than 50% of China’s tax revenue, more than 60% of GDP, more than 70% of technological innovation, more than 80% of urban labor employment, and more than 90% of the number of enterprises. However, the ideology of the CCP, guided by Marxism, has not changed. When short of money, it can turn private property into “national” property anytime.

  • The CCP’s economy is a power economy

The prominent feature of the power economy is that power is involved in all areas of the economy, and all places where money can be made are controlled by power. Therefore, if private entrepreneurs, in particular, or any individual, do not listen to the Party, they will not be able to borrow money, get land, or even be cut off from water and electricity.

The CCP’s economy is based on mastering the “barrel of the gun” (the army) and the “handle of the knife” (political law). Facing the CCP, private entities are still “vulnerable groups” no matter how rich they are. When the CCP uses “knives” and “guns” as the backing to “snatch” money, private entrepreneurs are powerless to fight back.

  • The CCP’s corruption has intensified the process of “robbing” money

An unspoken rule in today’s CCP officialdom is that to get promoted and rich; one must bribe higher-level officials with money. So, where does the money come from? “Grabbing” from private enterprises is the easiest way. 

Tong Zhiwei, a professor at East China Normal University, pointed out in the “Chongqing Crackdown Report” that the targets of hacking are all private entrepreneurs. Li Zhuang, a lawyer from Beijing, once told mainland media that when he carefully reviewed the multiple anti-gang judgments in Chongqing, he found that the last page of almost all judgments contained the same six words—”confiscation of all property.”

  • The CCP is afraid of private entrepreneurs

The CCP has always relied on coercion and deceit to maintain its rule, and it is always afraid that someone will “subvert” the regime. Therefore, when private entrepreneurs become strong, the CCP fears these people will become a force endangering its authority.

Summing up

To sum up, the cash crisis in China’s banking system, which has affected millions of people recently, might be just the tip of the iceberg. Karl Marx declared, “The theory of the Communists may be summed up in the single sentence: Abolition of private property.” Correspondingly, under the supremacy of the Communist Party, the Chinese people are attached to a fatal destiny of losing their possessions, sooner or later. If there indeed exists a way to secure private property, it would be to denounce the reign of the Chinese Communist Party.

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