People protesting in China
Source: Getty Images

China's Banking Crisis, Explained: Tanks Move In to Quell Protests

Mohit Oberoi, CFA - Author
By

Jul. 21 2022, Published 7:40 a.m. ET

China’s real estate crash and Evergrande crisis have made global headlines, and now, the country’s banking sector is in crisis. After people protested against their bank funds being frozen in Henan, China’s PLA (People’s Liberation Army) has reportedly sent in tanks.

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It's not often we hear of protests in Communist China. But they've become more common, with some arising against COVID-19 lockdowns.

china banking crisis explained
Source: Getty Images
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Why banks accounts are frozen in China

The protestors' bank accounts have been frozen since April. It's a rural bank, meaning it's more prone to corruption than larger state-owned banks.

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Chinese mortgage borrowers boycott payments

Another crisis is brewing in the Chinese banking industry, with mortgage borrowers boycotting payments. Several housing projects are delayed in China, but those who have taken a mortgage to buy those houses still have to make payments.

The mortgage boycott is a far bigger risk for the Chinese banking sector and economy. The real estate sector accounts for around a quarter of the Chinese economy, and there are around $300 billion in loans toward properties that aren't yet constructed.

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China’s housing bubble has global repercussions

China’s housing sector is the single biggest consumer of steel, aluminum, and copper. The prices for these metals have crashed, and if China's property sector weakens further, we could see metal prices fall further. China has vowed to provide stimulus to its slowing economy but has been wary of debt-infused growth, given the already high leverage in the economy.

Xi Jinping could be reelected in 2022

The protests are also concerning for Chinese president Xi Jinping, who had amended the constitution to make him eligible for more than two terms. He could be up for reelection later this year, but China's slowing economy, his handling of the COVID-19 pandemic, and the recent protests will be major challenges for him. Meanwhile, Chinese authorities are reportedly censoring reports of the protests on social media.

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