– Hundreds rush to rural Chinese banks after solvency rumors (Reuters, March 25, 2014):
Hundreds of people rushed on Tuesday to withdraw money from branches of two small Chinese banks after rumors spread about solvency at one of them, reflecting growing anxiety among investors as regulators signal greater tolerance for credit defaults.
The case highlights the urgency of plans to put in place a deposit insurance system to protect investors against bank insolvency, as Chinese grow increasingly nervous about the impact of slowing economic growth on financial institutions.
Regulators have said they will roll out deposit insurance as soon as possible, without giving a firm deadline.
Domestic media reported, and a local official confirmed, that ordinary depositors swarmed a branch of Jiangsu Sheyang Rural Commercial Bank in Yancheng in economically troubled Jiangsu province on Monday.
The semi-official China News Service quoted the bank’s chairman, Zang Zhengzhi, as saying it would ensure payments to all the depositors. The report did not say how the rumor originated.
Chen Dequn, a resident in Yandong, just outside Yancheng, said she saw a crowd of about 70 to 80 people gathering in a branch of Sheyang Rural Commercial Bank in her town on Tuesday.
“At the moment there are about 70 or 80 people in there. Normally there’d only be about 10,” she told Reuters by telephone.
Officials at another small bank, Rural Commercial Bank of Huanghai, said they had faced similar rushes by depositors, triggered by rumors of insolvency at Sheyang.
“We will be holding an emergency meeting tonight,” an official at the bank’s administration office told Reuters, but declined to comment further.
Why Yancheng investors suddenly lost confidence in the security of their bank deposits is not clear, given that the Sheyang bank is subject to formal reserve requirements, loan-to-deposit ratios and other rules to ensure it keeps sufficient cash on hand to meet demand.
Bank failures in China are virtually unknown, as Chinese banks are considered to operate under an implicit guarantee from the government.
Finally, money market interest rates have eased since February, and traders say liquidity in the interbank market — where banks like Sheyang can tap short-term funds to meet depositor demand — remains relatively relaxed. <CN/>
“It’s true that these rumors exist, but actually (the bank going bankrupt) is impossible. It’s a completely different situation from the problem with the cooperatives,” said Zhang Chaoyang, an official at the propaganda department of the Communist Party committee in Tinghu district, where the bank branch is located.
Zhang was referring to an incident that rattled depositors in Yancheng in January, when some rural cooperatives — which are not subject to the supervision of the bank regulator — ran out of cash and locked their doors.
Local officials say several co-op bosses fled after committing fraud.
China’s central bank governor said this month that deposit rates are likely to liberalized in one to two years – the most explicit timeframe to date for what would be the final step in freeing up banks to set their own interest rates.
It is widely expected to introduce a deposit insurance scheme before freeing up deposit rates, to protect savers in case a liberalized market puts major strains on smaller banks and alarms the public. Analysts also expect the controls on deposit rates to be lifted gradually. Is China’s debt nightmare a province called Jiangsu?
DEFAULT FEARS
Investors both in China and globally have taken note of Beijing’s recent decision to allow China’s first domestic bond default. Chaori Solar Energy Science and Technology Co Ltd missed a bond coupon payment in March. Officials have indicated publicly that they believe other defaults are inevitable but do not believe such incidents will lead to systemic risk.
In the past, domestic bond issuers were routinely bailed out by local governments and banks, and the willingness of regulators to let Chaori miss interest payments negatively impacted rates in Chinese offshore credit markets.
More recently, media also reported a heavily indebted real estate developer in Zhejiang province was at risk of defaulting on 3.5 billion yuan ($565 million) worth of loans — a situation that has yet to be resolved.
When contacted by Reuters by phone on Tuesday, an official at the Jiangsu Sheyang Rural Commercial Bank branch hung up, saying she was busy.
An official at the administrative office at Jiangsu Sheyang Rural Commercial Bank said the bank would publish a statement shortly. On its website, the bank says it is capitalized at 525 million yuan ($85 million) and had total deposits of 12 billion yuan as of end-February,
Officials at the Jiangsu branch offices of the China Banking Regulatory Commission (CBRC) declined to comment. The Yancheng branch of CBRC and the propaganda offices in Yancheng city and Sheyang county did not answer calls seeking comment. ($1=6.1888 Chinese yuan)
If anyone doesn’t realize China is in deep financial trouble, I don’t know what it will take. So is the US, but it is worse in China. China was rural and underdeveloped for centuries. Thanks to Richard Nixon (the worst of his crimes in my opinion), China was “opened” to the world, and the greedy gut exploitation began not just of China, but of the US and the Eurozone.
Clinton’s evil globalization plan has destroyed the US economy, the career driven growth for all time. China was the place to provide slave labor and no regulations. None in banking, environment or labor. As a result, it is the dirtiest country on earth now, millions upon millions are unemployed, riots occur by the hundreds every day, and not one word makes it to the media. It is the garbage dump of the world, regardless of its pretty ghost towns nobody can afford. The air is so bad, they cannot see daylight, and the rich are leaving for cleaner pastures.
All of this is hurting China.
15 years ago, China was filthy, now it is beyond repair. Greedy guts have moved elsewhere. Convict labor in the US is cheaper than slave labor in China, and the US has over a million people locked up for very small infractions to give corporations cheap labor. 70 cents a day is cheaper, and that is all the greedy guts care about.
Not only that, using convicts gives them huge tax breaks, and continues to undermine the workers of America. 100 million working age Americans are without work…….that is 33% of the total population…….and it is getting worse.
But, in China, it is really bad. Their entire economy has been run with Enron accounting, and it has depended on exports. After the US and Eurozone crashed, their exports have fallen, and as corporations have found cheaper places to put their factories, demand for China is dropping.
As a result, they are in deep trouble.
Five years ago, it was believed they would be the #1 economy…….that is no longer the case. China has so many holes in it’s social network that it isn’t working well, and totalitarian repression isn’t helping the economy.
When China falls (and it has allowed government backed bonds to default already………three different kinds in the past 3 weeks), it will be felt like a major economic earthquake around the world.
It is happening now.