According to Reuters, three banks in Henan province in central China have frozen at least 178 million dollars in deposits, causing companies to be unable to pay workers and leaving individual depositors without access to their money.
Yu Zhou Xin Min Sheng Village Bank, Shangcai Huimin Country Bank, and Zhecheng Huanghuai Community Bank suddenly froze all deposits on April 18. These banks cited internal system upgrades as a justification for the move.
Depositors of the three banks told Reuters they set up a WeChat group to communicate how to retrieve their money. Some posted videos of protests outside the banks, while others said they went to the banks’ headquarters to seek explanations but were turned away by police.
The factory owner in Hubei province, Jerry Chang, told Reuters that he could not withdraw more than six million yuan (about 900,000 dollars) at Yu Zhou Xin Min Sheng Village Bank. His failure to withdraw money significantly impacted his factory’s operations, such as paying workers’ wages and procurement.
According to Reuters, China’s numerous local banks are essential, even though small, as they make loans to small and mid-sized enterprises. Therefore their activity can be seen as an indicator of the economy’s health.
SCMP reported that small banks played an important role during the pandemic because they provided funds to small factories and farmers.
In the last decade, small banks in China enjoyed rapid growth due to the state-led growth model. Unfortunately, this has led to debt-fuelled spending by local authorities. But, many of them are now facing problems, including high bad debts, insufficient funds, and poor governance.
Bank earnings are expected to decrease as China’s zero-Covid strategy hurts business activities.