China’s economic crisis hits countryside after rural banks ordered to freeze withdrawals
By Mahua Venkatesh
New Delhi, May 31: An unprecedented cash crisis is emerging in the Chinese hinterland.
Deposits at several rural banks have remained frozen for more than a month now. These banks are Yuzhou Xinminsheng Village Bank, Zhecheng Huanghuai Community Bank, Shangcai Huimin County Bank and New Oriental Country Bank of Kaifeng. Such a drastic move could be the precursor to a bigger economic challenge, foreign policy watchers said.
“The liquidity crisis emerging at four rural banks in China’s central Henan province is any saver’s worst nightmare,” the South China Morning Post said, adding that photos and videos of protesters with banners demanding ” give us back our money” circulated.
The health of the country’s small local lenders, which are generally outside any rigorous oversight system, has raised alarm.
They have traditionally lent to small and medium-sized businesses which have been hardest hit by the government’s strict zero Covid approach.
Chinese rural banks have gained greater prominence under Chinese President Xi Jinping. These banks were charged with stimulating rural consumption and growth. Many of these small and medium enterprises were export oriented. “These companies have become very vulnerable with the shrinking export market and the suffocation of the supply chain network. In turn, there is an increase in the level of bad debts in these banks, which has escaped attention,” one analyst said.
However, these banks, which have been facing headwinds since the outbreak of the Covid pandemic in 2020 and the slowing economy, remain vulnerable with high levels of bad loans. “These banks failed to recover from the impact of 2020,” the analyst added.
Not the first time
This is not the first time restrictions on withdrawals have been imposed.
In July 2020, the Communist Party of China imposed restrictions on cash withdrawals from banks in Hebei province amid a sharp rise in non-performing assets (loans that become non-performing). The exercise, which had been resumed as a pilot project, had sent waves of panic.
Amid a deepening economic crisis, Chinese Premier Li Keqiang last week addressed an unprecedented nationwide video conference aimed at stabilizing the economy and boosting business confidence. This decision clearly indicates that the world’s second largest economy is slipping into panic mode.
In his remarks, Li said shocks to several macroeconomic indicators including job creation and industrial production are larger than those experienced during the Covid 19 pandemic outbreak.
In April, China’s unemployment rate was 6.1%, the highest since February 2020. In March, it was 5.8%. Since January, the unemployment rate in the world’s second largest economy has increased slightly.
China posted 4.8% economic growth in the January-March period this year, but second-quarter macroeconomic indicators clearly paint a worrying picture for the world’s second-largest economy.
While the country has set a growth target of 5.5% for the current year, most economists have indicated that Beijing will not reach the magic number.
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