One of heavily indebted Chinese property developer Evergrande’s local lenders displayed this week a “cash wall” of renminbi notes at its office after depositors queued up to withdraw their deposits in what could be the front edge of a bank run crisis in China.
Hundreds of people have queued up at the Bank of Cangzhou’s head office in Hebei province to get their deposits out of the bank since October 7, according to photos and videos circulated on social media.
The mini-run came after netizens circulated a post that claimed dozens of Chinese banks would need to write off their loans if Evergrande went bankrupt. According to the social media post, Evergrande owes Cangzhou Bank about 3.4 billion yuan (US$466 million). Asia Times could not independently confirm the figure in time for publication.
The Bank of Cangzhou said its outstanding loans to Evergrande and its affiliates amounted to only 340 million yuan as of October 6, or one-tenth of the amount claimed in the widely circulated social media post. It said it had sufficient lands and properties as collateral to cover any Evergrande-related losses.
“The overall risk is controllable and will not have a significant impact on the bank’s operations, management and asset quality,” it said.
However, Chinese media reports said the bank’s statement and “cash wall” have so far failed to assuage its depositors. In China, “cash walls” are commonly seen at corporate events such as the delivery of annual bonuses.
Meanwhile, transparency concerns are rising. Police in Cangzhou said they arrested several people for allegedly spreading rumors that the Bank of Cangzhou will soon go bankrupt.
Earlier hopes that Evergrande can avoid bankruptcy are diminishing as Hong Kong’s High Court will hold a hearing on a liquidation case filed by Evergrande’s offshore creditors on October 30.
To assuage concerns the ongoing property crisis may threaten China’s financial stability, the State Council said in a guideline on October 11 that it will help urban commercial banks and rural financial institutions dispose of bad assets and loans while also replenishing their capital through multiple channels.
“Consumers should make rational judgments and avoid being affected by rumors and losing their interest income,” the People’s Bank of China (PBoC), former China Banking and Insurance Regulatory Commission and the local government’s financial management office in Suning in Cangzhou said in a joint statement.
The statement said the Bank of Cangzhou had total assets of 245.6 billion yuan at the end of September, made a net profit of 1.21 billion yuan last year and had recently paid 600 million yuan in taxes. It said the bank’s financial situation is healthy and stable.
The statement added that the bank’s depositors are also well-protected by China’s deposit insurance scheme, which guarantees that a depositor can be compensated up to 500,000 yuan if their bank goes bankrupt.
“While all banks in China contribute to deposit insurance, the nation protects the safety of people’s deposits in the form of legislation,” a Hunan-based writer says in an article. “Deposit insurance is guaranteed with the country’s credit, which is the highest level of credit at this stage.”
He says if people still lack confidence in small banks, they should deposit their money in large state-owned banks instead.
A Henan-based columnist who writes under the Ku Ge pen name says the Bank of Cangzhou may collapse due to rumors rather than Evergrande’s unpaid debts, which he argues is a minor issue. He notes that even a bank as big as the Industrial and Commercial Bank of China would not survive if all its depositors suddenly withdrew their money.
Chinese commentator Shi Shan says in a YouTube video released on October 13 that the collapse of any Chinese property developer will accrue as bad assets in banks. He claimed that large banks still have enough cash on hand at the moment but smaller ones may have to ask their depositors to wait for withdrawals.
‘Technical’ divorce
On September 28, Evergrande said in a filing to the Hong Kong stock exchange that its chairman, Hui Ka-yuan, is now “subject to mandatory measures in accordance with the law due to suspicion of illegal crimes.”
Earlier, Bloomberg reported that Hui was under police surveillance. Chinese commentators said if Hui faces penalties, it will probably be due to the inability of Evergrande’s wealth management unit to repay its investors.
But the matter seems to be much more complicated.
The 21st Century Business Herald reported on September 28 that financial regulators were concerned by Hui’s “technical” divorce from his wife Ding Yumei.
The report said Evergrande had delivered about 90 billion yuan of dividends to its shareholders over the past many years while the couple received a majority of it through their offshore companies registered in the British Virgin Islands and the Cayman Islands. It said this money is now controlled by Ding after the couple’s divorce.
“Hui had said in a high-profile speech in 2021 that he could lose everything but would not allow his employees ‘lying flat’ (in the delivery of properties to homebuyers),” a corporate governance expert was quoted as saying in the report. “But he was actually saying one thing and doing another.”
The couple reportedly divorced last year. Ding was no longer listed as Hui’s spouse in Evergrande’s filing in August this year and had left Hong Kong in late July. She holds a Canadian passport.
When Evergrande’s debt crisis became apparent in 2021, it was ordered by Beijing to make property delivery its top corporate priority. Hui was also forced to sell his luxury yacht, villa and aircraft to repay Evergrande’s debts.
But at the end of last year, the company still had net current liabilities of 687.7 billion yuan and total liabilities of 2.44 trillion yuan. It has been further hit by falling home prices this year.
Evergrande still has 1.62 million unfinished apartments, which affect more than 5 million people, according to Chinese media reports.
Read: Evergrande seen likelier to fall as chairman probed
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