Chinese bank fraud protest turns violent after police step in

Chinese authorities have dispersed hundreds of people from the regional office of the People’s Bank of China after a rare protest over bank fraud.

Sunday’s protest was the latest escalation in a months-long dispute as customers fought to recover their deposits from four small banks in Henan province in central China after the lenders suddenly suspended online cash withdrawals in April.

The abrupt and unexplained suspension of cash withdrawals sparked a bank run that exposed tensions between local officials and depositors desperate to recover their frozen savings and raised concerns over the financial health of the country’s smaller lenders.

Local police reiterated that they blamed fraudulent management practices for the crisis. But the case has put local financial authorities and the government under pressure as they have yet to address depositors’ concerns about who will pay for the potential loss from fraud-hit lenders.

The saga has drawn nationwide attention in China after some local officials changed the codes of the personal health apps of more than 1,000 depositors to imply they had tested positive for Covid-19 and prevent them from protesting. The move exacerbated broader fears over improper use of mandated coronavirus contact tracing apps to control the public.

Hundreds of increasingly desperate depositors gathered in front of the bank of the country’s central bank in Zhengzhou, Henan’s capital, on Sunday waving banners and demanding a timetable for recovery plans, according to depositors at the scene.

Local security forces outnumbered the protesters and soon stepped in to disperse the crowd, leaving some depositors with broken bones and eye injuries after the clashes turned violent, according to depositors who shared their diagnoses with the Financial Times.

“I saw a woman roughly dragged away by security guards from the stairs,” a young depositor surnamed Liu told FT. “I just looked at it, feeling angry and speechless. What have we done so wrong? ”

The clashes in Henan underscored the difficulties faced by the province’s financial institutions as Beijing seeks to rein in financial risk. Cash flow at many local banks has come under strain in recent years because of a crackdown on highly leveraged developers.

“The central government needs to worry more now about the property sector issue spilling over into the regional banks,” said one Hong Kong-based hedge fund manager who trades in developer debt. “Regional banks have a lot more exposure to property than they would like to admit.”

Late on Sunday, the Henan banking and insurance watchdog posted a short notice on its website promising to release a plan to resolve the issue soon and speed up the verification of customer funds at the four banks.

Local police have accused a criminal gang led by a businessman named Lu Yi of falsifying loans and illegally transferring bank funds in a case that reportedly involves hundreds of thousands of depositors and nearly Rmb40bn ($6bn) of their savings.

The police have detained a group of suspects and seized some funds, they said, without elaborating.

In a sign of Beijing’s increasing unease over the public disruption, Liu Rong, a former top banking watchdog, was dispatched to take charge of all financial regulatory work in Henan.