Last summer in Henan, with China’s zero-covid policies still in place, thousands of enraged depositors took to the streets when they discovered that four local banks had frozen Rmb40bn of their money. The freeze was imposed after a year-long fraud, during which the banks’ owners had extracted cash and escaped overseas.
The incident reverberated around the country, adding pressure to reform banking and financial regulation at the national level. In March, Beijing announced a shake-up of China’s financial and banking oversight and regulation.
The language and substance of the reforms are bold. The question is whether China has built a clear mechanism that will protect its system when banking crises multiply. China is not the only one grappling with the issue, as the failure of the Silicon Valley Bank in the US and the fire sale of Credit Suisse demonstrate.