This July witnessed a surge in commercial paper defaults by Chinese banks, and the confidence of the Chinese public in bank deposits plummeted like never before.
A China expert warned that China’s financial crisis is about to hit.
Commercial Bill Defaults
According to the July 2023 commercial bill default data sheet released by the Shanghai Commercial Paper Exchange in August, as of July 31, a total of 2,851 commercial bill acceptors had defaulted, an increase of about 80 percent from 1,554 in January. Of the commercial bill defaulters, 271 were banking institutions, representing a 356 percent jump in one month from 33 defaulting banks in June.
The acceptor’s breach of contract means that the acceptor cannot fulfill the acceptance obligation on the note on time—that is, the cash corresponding to the note cannot be paid on time. The “overdue acceptor” announced by the Shanghai Notes Exchange refers to an acceptor who has had overdue bills at least three times and still has overdue bills in the current month.
Of the 271 bank branches that defaulted on their notes, the five largest Chinese state-owned banks—the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, and the Postal Savings Bank—accounted for 167. The remaining 104 are mostly urban and rural commercial banks that are at risk of bankruptcy, and there are also a few joint-stock banks and branches of foreign banks.
China’s state-owned banks are directly controlled by the central government agencies, including the Ministry of Finance and Central Huijin Corporation. They represent the most powerful financial capital force in China.
In the first half of this year, the number of overdue banknotes announced by the Shanghai Bills Exchange was very small. Since July, records of defaults from 271 banks have emerged en masse, indicating that China’s credit risk has spread from the real estate sector and investment-financing platforms to the banking system.
Loss of Trust
Over the past few years, prominent real estate giants in China have frequently experienced financial crises, and there was a wave of bank runs in 2022. Not long ago, Zhongrong Trust, highly favored by high-net-worth individuals, suddenly halted redemptions without warning.
Repeated blows to the credibility of China’s financial system have shattered people’s faith in investment and finance, pushing them toward what they believe are safer bank deposits. However, public confidence in banks has seen an unparalleled drop this year.
Recently, some financial professionals reminded the public on social media that deposits in one bank should not exceed 500,000 yuan. If you have a lot of cash, it is better to spread it among different banks. If you have a deposit of 500,000 yuan in hand, you should deposit it in several banks separately to ensure the safety of the deposit as much as possible.
According to the current Deposit Insurance Law, for each depositor, deposit plus interest up to 500,000 yuan in an insured bank are fully guaranteed in the event of bank failure.
One dollar is equivalent to 7.34 yuan this week.
Speaking to The Epoch Times on Aug. 23, Wang Nan (pseudonym), a Shenzhen resident, said, “We even have to divide our deposits among the four major state-owned banks. Each bank does not exceed 499,000 yuan, and other banks aren’t on my list of choices at all. People use the rest of the money to buy gold bars and put them under the bed at home. Who can you trust? It was a credit collapse.”
As soon as the Zhongrong Trust financial products, in which Ms. Wang had poured 11 million RMB, got suspended for redemptions, she and another 150,000 investors went broke overnight. They also became the surveillance target by the Chinese regime’s social control efforts, as investors like her often seek to redress their grievances by petitioning to higher authorities.
When sharing her story with the The Epoch Times, Ms. Wang said that there’s a consensus among her investor group that they no longer trust any government-affiliated financial institution and will not invest in any of their products, including wealth management products from major banks.
Elderly Queue Up at Banks to Withdraw Money
The elderly are the main source of bank deposits in China. Recently, in some places such as Guangdong, there have been scenes of old people queuing up at bank gates to withdraw money.
The Internet is also buzzing about this unusual phenomenon. Some netizens commented that it shows that the elderly are worried about financial risks, feel insecure about keeping their money in banks, and fear that their deposits could be frozen or lost anytime.
A Twitter account with the same name as Luo Xiang, a dissident and a criminal law professor at the China University of Political Science and Law, recently retweeted a video of elderly people crowding into banks to withdraw their money, accompanied by a message: “Major banks in China are being crowded by elderly people! The reason is that in order to embezzle private deposits, the banks are making it difficult for their children to withdraw money by requiring them to be present in person and creating all kinds of outrageous difficulties! Anything the Chinese Communist Party (CCP) does is to dig its own grave.”
He An, a netizen, when following Mr. Luo’s post, wrote that he still could not withdraw the money his father had deposited in the bank when alive.
In recent years, the CCP has tightened financial regulation, limited the amount of withdrawals allowed, and required personal identity verification. Banks require the customer to bring proof of identity to the bank in person, making it difficult for the elderly to withdraw money.
There have been news reports of banks not allowing family members to withdraw money when an elderly person dies.
There are also cases of children having to carry a paralyzed elderly parent to a bank to be able to withdraw money. In one such case, a 94-year-old man was carried into a bank for facial recognition in order to process the withdrawal.
Looming Financial Crisis
Alexander Liao, a China expert residing in the United States, told The Epoch Times that a very important reason for the increased scenes of elderly people queuing up to withdraw money is that the bank’s rigid and ruthless approach when implementing the new rules.
“If an elderly person is too sick to move, it is almost impossible for them to withdraw large sums of money, so they decide to withdraw their money now,” he said.
According to Mr. Liao, this will have a big impact on banks in China, as bank run will easily lead to increased liquidity risk of the bank, and even trigger a bank operational crisis, which will have an impact on the Chinese economy.
“From the recent default of more than 270 banks’ commercial bills to the old people’s distrust of banks and their withdrawals, all these aspects show that the financial crisis in Chinese society is about to begin,” he said.
From The Epoch Times
