China Limiting the Money Withdrawing Capacity, Amid the Financial Crisis Leaves Citizens Frightened
China’s government has imposed restrictions on large cash withdrawals following a growing number of bank failures in the wake of the country’s financial crisis. Many local banks were unable to repay their customers as large numbers of people had reportedly gathered to withdraw their deposits.
When local government assurances and police warnings did not work, the Hebei Province government launched a pilot program urging businesses and the public to look for other ways to withdraw their own money.
Initially, customers were told not to withdraw cash from banks because of unfounded rumors, but a rush of depositor withdrawals sparked by news of a possible government crackdown on cash withdrawals in the wake of the financial crisis.
The two-year pilot program will cover 70 million people in three provinces and will be extended to Zhejiang and Shenzhen provinces in October this year. The new rules require companies and individuals in Hebei Province to make at least 10,000 yuan ($1,500) a month in cash withdrawals by July 1.
When a group of depositors hurriedly withdrew cash, Baode Baoding, the head of the Central Bank of Hebei Province, said that people should not believe or spread rumors and should maintain good financial and social order. A similar statement was made in Zhejiang province, where depositors flocked to local branches in anticipation of bank failure.
Chinese lenders are facing a surge in bad loans as the economy grows at its slowest pace in four decades, Bloomberg reported, while China has launched a pilot program to limit withdrawals. The authorities have intervened to stop the flow of money to banks in the country’s most populous provinces and cities.
According to local media reports, local police have begun arresting people who are talking about repaying bail. The news came after last year when China bailed out or seized several troubled banks. NPLs in Chinese banks grew exponentially as an artificial real estate boom collapsed, and several companies defaulted.
A few days ago, a report in China suggests that the Wuhan – based at the Central Bank of China, the country’s second-largest bank – had borrowed $1.5 billion ($2.2 billion) in pure gold collateral.
This sent shockwaves through China’s shadow banking industry, and the value of these shadow banks – known in China as “trusts” – plummeted. In addition to local banks, many of the country’s largest private shadow banks have collapsed. If a shadow bank claims gold because a company is unable to repay it, it can find out that what the company claims is pure gold, in fact, copper. Following this latest development, both China’s central bank and the China Securities Regulatory Commission (CSRC) have apologized to investors for failing to meet payment deadlines for financial products.
Since the Coronavirus pandemic, which led to the closure of many companies, mistrust of the Chinese financial system has grown, a few days ago, China’s central bank and the China Securities Regulatory Commission (CSRC) apologized to investors for missing payment deadlines for financial products.
Chinese companies whose business depends on exports will close down. The growing momentum of a boycott of Chinese goods, especially from the United States and other countries, has added fuel to the fire.
Chinese companies have lost trillions of dollars’ worth of market value over the past two years, according to the International Monetary Fund (IMF) and the World Bank.
As a result, the Chinese economy will suffer a significant jolt in the coming days, sending shockwaves around the world. As we have said, China’s forced demand for money from foreign investors, and a lack of liquidity are to blame. This significantly means that companies cannot repay the money and are vulnerable to default, which would fuel mistrust of banks and lead to panicked withdrawals of deposits.
