'The heavy-handed response of the authorities to the threat of a run on the banks and to the protests suggests something with wider significance' | OPINION from senior business columnist Stephen Bartholomeusz
It’s a bit hard to have a run on a bank when the depositors can’t get access to their funds, are assaulted by what appear to be plainclothes police when they protest, and China’s strict COVID regulations and the technology that supports them are used to flag protestors as health risks, which prevents them from using public transport or entering buildings.
There is concern that the banks have attracted deposits by offering interest rates that are unsustainable in the current Chinese economic environment, with growth slowing quite dramatically because of the continuing lockdowns that result from China’s harsh “zero COVID” policy as well as soaring energy costs, droughts and floods.
In this environment, the potential for bank failures and bank runs, particularly among the smaller and less well-supervised banks, is real.Scenes like those at the weekend – videos of the protests and the police response were circulated widely, and internationally, on social media – raise the risk of contagion within China’s banking system as depositors at other banks worry about losing access to their life savings.
So dire is the plight of developers that some of them in rural China are now offering to accept garlic, wheat, barley and even watermelons as payment for deposits. A domestic default by Evergrande would have major ripple effects through the sector. Until now, it has been primarily foreign creditors and owners of uncompleted apartments bearing the brunt of the property sector’s losses.
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