Arab Press

بالشعب و للشعب
Wednesday, Oct 01, 2025

China’s banking system begins to crack at its grass roots as two bank runs take place within a week

Local governments and police in both Hebei and Shanxi provinces were forced to intervene after rumours concerning Baoding Bank and Yangquan Commercial Bank. China is hoping to rely on its small lenders amid the fallout from the coronavirus to provide funds to small factories and farmers

China’s US$40 trillion banking system is seeing growing signs of trouble at its grass roots with bank runs happening at two small local lenders last week, a sign that a mountain of debt and an unprecedented economic contraction has started to take a toll.

Local governments and police in both Baoding city in Hebei province and Yangquan, a coal mine town in Shanxi province, last week pleaded with customers not to withdraw cash from local banks despite various unsubstantiated rumours.

On Saturday, the city of Baoding said on its official WeChat account that Baoding Bank was operating normally and people “should not believe in or spread rumours … and should jointly be safeguarding good financial and social order” after a group of depositors rushed to withdraw money from the bank.

Local police issued a statement saying it had arrested two individuals for spreading rumours that led to “panic among the public”.

Three days earlier, the government and police in Yangquan were forced to issue a similar statement after local depositors rushed to Yangquan Commercial Bank.

According to a local government notice on Wednesday, the local government pleaded the public not to withdraw cash from the bank in groups and “be watchful of risks of holding a lot of cash”.

Local branches of China’s central bank and the banking regulator also issued statements seeking to assure the public that their savings at the banks were safe.

Phone calls made to both banks went unanswered on Tuesday.

Bank runs are not necessary for most savers as bank deposits in China are guaranteed up to 500,000 yuan (US$70,000) per bank, however, investment wealth management products and trust investment plans, which are popular among Chinese residents and are often sold via bank branches, are not protected.

The Bank of Gansu, which raised HK$6 billion (US$848,000) through an initial public offering in Hong Kong in January 2018, was hit by a bank run in April, while Yingkou Coastal Bank in the rust-belt province of Liaoning received a large volume of over-the-counter requests to withdraw cash in November.

And while bank runs are often calmed quickly after intervention by the local governments, they provide reminders of the troubled balance sheets of small Chinese banks amid souring loans and darkening growth prospects which have been exacerbated by the coronavirus.

Baoding Bank said in its financial statements that its non-performing loan ratio had increased steadily to 2.12 per cent at the end of 2019 from 2.09 per cent in 2018 and 1.84 per cent in 2017.

Yangquan Bank has not published its 2019 data, but its non-performing loan ratio had more than doubled to 2.57 per cent in 2018 from 1.03 per cent at the end of 2017.

The emergence of small lenders in China in the last decade is the result of the state-led growth model which in turn has promoted local governments’ debt-fuelled spending. However, many are now facing a mix of problems including rising non-performing loans, insufficient capital and poor governance.

According to figures released by the China Banking and Insurance Regulatory Commission, the average non-performing loans ratio at city commercial banks – a group that includes both Baoding Bank and Yangquan Commercial Bank – was 2.45 per cent as of the first quarter of 2020, about 1.7 times of the average of 1.41 per cent for big four state banks over the same period.

But the real picture could be much worse after the central government last year took control of Baoshang Bank as the lender in Inner Mongolia, once a star performer, was unable to sustain operations and was recapitalised and reformed.

Last year, the central government was also forced to bail out the Bank of Jinzhou and Hengfeng Bank.

“What we’ve seen is that in many occasions, in cities and counties, there are some consolidations in small lenders,” said Steven Chan, executive director of equity research at Haitong International. “Especially the very weak ones.”

For the Chinese financial authority under Vice-Premier Liu He, the bottom line is that problems at individual institutions will not evolve into “systemic risks”. The pressure to solve the problems of local institutions are often put on local authorities, and Beijing is very discreet in directly bailing out local banks.

The small banks’ woes come at a time when Beijing needs them the most as the Chinese authority is relying on small lenders, which often serve small businesses, to provide credit to factories and farms so that the so-called economic cells of the Chinese economy can survive the impact of the coronavirus.

China’s banking regulator is drafting a plan concerning recapitalisation of small lenders, although details have yet to be published. According to the 21st Century Business Herald, China is thinking of selling 200 billion yuan (US$28 billion) worth special bonds, usually used to fund infrastructure projects, to raise funds for the state owners of local banks.

“We expect the slowing of loan growth for regional banks to continue in the rest of 2020 as regulators act to resolve the most vulnerable regional banks,” said Moody’s in a report published last week, adding that city commercial banks’ lower profitability also makes it unlikely that they can replenish their capital by earnings alone.

Newsletter

Related Articles

Arab Press
0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
UK, Canada, and Australia Officially Recognise Palestine in Historic Shift
Dubai Property Boom Shows Strain as Flippers Get Buyer’s Remorse
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
UAE-US Stargate Project Poised to Make Abu Dhabi a Global AI Powerhouse
Saudi Arabia cracks down on music ‘lounges’ after conservative backlash
Saudi Arabia Signs ‘Strategic Mutual Defence’ Pact with Pakistan, Marking First Arab State to Gain Indirect Access to Nuclear Strike Capabilities in the Region
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
Kuwait opens bidding for construction of three cities to ease housing crunch.
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
Could AI Nursing Robots Help Healthcare Staffing Shortages?
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Tether Expands into Gold Sector with Profit-Driven Diversification
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
Israeli Airstrike in Yemen Kills Houthi Prime Minister
After the Shock of Defeat, Iranians Yearn for Change
YouTube Altered Content by Artificial Intelligence – Without Permission
Iran Faces Escalating Water Crisis as Protests Spread
More Than Half a Million Evacuated as Typhoon Kajiki Heads for Vietnam
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
Beijing is moving into gold and other assets, diversifying away from the dollar
Trump Backs Putin’s Land-for-Peace Proposal Amid Kyiv’s Rejection
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
Iranian Protection Offers Chinese Vehicle Shipments a Cost Advantage over Japanese and Korean Makers
United States Sells Luxury Yacht Amadea, Valued at Approximately $325 Million, in First Sale of a Seized Russian Yacht Since the Invasion of Ukraine
Saudi Arabia accelerates renewables to curb domestic oil use
Cristiano Ronaldo and Georgina Rodríguez announce engagement
Asia-Pacific dominates world’s busiest flight routes, with South Korea’s Jeju–Seoul corridor leading global rankings
Private Welsh island with 19th-century fort listed for sale at over £3 million
Sam Altman challenges Elon Musk with plans for Neuralink rival
×