Chinese authorities are moving to prevent further financial contagion as a bank run unfolds in one of its provinces.
Thousands of customers lined up to withdraw their money amid worries that the Bank of Cangzhou is at risk of going under, reports state-run Chinese media.
The regional bank lent hundreds of millions of dollars to Evergrande, a massive Chinese property developer that went bankrupt last year.
In a statement, the bank says its risk and exposure to Evergrande is manageable.
“The overall risk is controllable and will not have a significant impact on the Bank’s operations, management and asset quality.
In order to recover the loan in full, our bank filed a civil lawsuit with the Cangzhou Intermediate People’s Court in July 2022 and won the lawsuit, and is currently executing the collateral disposal procedures in accordance with the law.”
However, the bank’s statement wasn’t enough to calm the public’s fear of a potential collapse, and police in Cangzhou arrested “many people” who were suspected of allegedly spreading false rumors about the bank’s exposure to Evergrande.
The bank run comes as The South China Morning Post reports that the Chinese government has taken new action to prevent contagion stemming from the country’s property crisis, which was partially triggered by the collapse of Evergrande.
Authorities are reportedly preparing to help replenish capital at commercial banks and rural financial institutions, while also aiding them in disposing of bad assets and loans. Some local governments have also issued new special-purpose bonds to help smaller banks raise money.
As part of the move to stop contagion, banks are now banned from operating outside of their designated regions.
China’s National Administration of Financial Regulation made a statement saying that more resources needed to be diverted to “rural revitalization” and agriculture to build up the country’s economy.
“[It is necessary] to focus on developing agricultural insurance, commercial pension insurance and health insurance products to support agricultural production, pension needs and basic livelihood security…
Comprehensively promoting rural revitalization is an important task in building a strong agricultural country in the new era. More financial resources must be allocated to the agricultural sector.”
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