China’s Banking and Property Sector Problems Affect Hong Kong: Analyst

By Nie Law
Nie Law
Nie Law
and Shan Lam
Shan Lam
Shan Lam
July 28, 2022 Updated: July 28, 2022

With the sluggish economy in mainland China’s banking and property system, with bank depositors unable to withdraw their money, and home buyers boycotting mortgage repayments to banks, Hong Kong banks’ loans to the mainland are affected and its banks face increased risks.

“The impaired loan ratios for Hong Kong banks’ mainland loans will likely further rise this year in light of China’s economic slowdown,” said Helen Zhang, an economic analyst, in a July 14 report by the U.S. credit rating agency Moody’s.

The majority of loans banks make outside of Hong Kong are in mainland China, accounting for 5-35 percent of its overall loan book. It is estimated that real estate loans make up at least 20-30 percent of the Hong Kong banks’ lending in mainland China.

Since the end of 2021, the risk of refinancing increased due to the weakness of domestic property sales, which will reduce the repayment ability of domestic property companies and increase the asset risk for Hong Kong banks, said the report.

Bank Accounts in China Frozen, Affecting Hong Kong Residents

On July 14, a subcommittee meeting of the Hong Kong Legislative Council raised concerns over many Hong Kong residents’ bank accounts in Mainland China having been frozen in recent years.

Pro-establishment party member Leung Mei-fun said she made a special trip to the mainland last year to unblock her frozen account and increase her online transfer limit. Subsequently, she was isolated for two weeks to meet anti-virus measures on the mainland.

Another member Leung Hei said his account in China Construction Bank was shut down a year ago. The account was intended to handle expenses such as rent collection and property fees for his stores in Dongguan city, Guangdong Province.

According to China’s bank rules, if a bank account has not been used for a long time or if one’s Mainland Travel Permit—a travel document issued by China for Hong Kong and Macau residents—expires, the account will be frozen.

This rule has already affected at least hundreds of thousands of Hong Kong residents, Leung said.

Because of the pandemic, the majority of Hong Kong people couldn’t visit the Mainland in the past two years to use their accounts.

Account holders have been unable to  withdraw funds  from their accounts in village banks in Henan Province since late April, as  previously reported in the Chinese language edition of The Epoch Time.

Epoch Times Photo
More than 300 depositors of a village Bank in Henan Province gathered in front of the Henan Supervisory Bureau to protest and demand that they be able to withdraw their money legally, on June 25, 2022. (Courtesy of the interviewee/ The Epoch Times)

On April 18, bank depositors in Henan Province were told they could not withdraw their money from banks in New Minsheng village of Yuzhou city, Huimin village of Shangcai County, Huanghuai village of Zhecheng Country, and New Oriental village of Kaifeng City.

Those banks issued notices saying bank withdrawal failures were due to a “system upgrade and maintenance” and that online banking and mobile banking services would also be suspended.

From May 18 to 21, depositors went to the provincial government and banking and insurance authority—both in Zhengzhou, the capital city of Henan Province—to demand the banks return their deposits, but they were expelled, beaten, sprayed with pepper water, and arrested by police.

In June, some protesters found that their Health Code was marked red, which means they are required to be isolated. The Health Code is a mobile app through which the Communist ruling Party oversees individuals’ vaccination and health status, but it’s more often used as a tool when the authority want to limit people’s outdoor activities for political reasons. Thus the depositors were prevented from going to the banks to get money or to complain.

On July 10, when at least 2,000 depositors gathered in front of the Central Bank Zhengzhou Branch they were violently assaulted by plainclothes police.

Subsequently, the authorities announced that they would start the advance payment measures on July 15, but in fact, many depositors find they still can’t access their deposits.

Similar cases also occurred in Shanghai. The phenomenon has spread from Shenzhen and Dandong in the south to Liaoning province in the north over the past months, sparking increased concern among Chinese nationals.

Observers see this as a sign that China is facing a financial system collapse, and the authorities are trying to find ways to stall for time so they can fix it.

Restrictions on Withdrawal of Money

In April, Agricultural Bank, Pudong Development Bank, and Everbright Bank successively announced they were lowering the transaction limits related to online business.

At the end of June, Agricultural Bank further restricted the daily spending limit to RMB1,000 (about $148) without informing depositors in advance.

Banks cutting spending limits is also happening in Hong Kong.

Nanyang Commercial Bank in Hong Kong announced on June 27 that it will reduce the daily limit for online banking, including transfers and remittances to third-party accounts, by half from HK$1 million (about $127,390) per day starting on July 24.

The Bank didn’t explain the reason for such a move. While it has long been known as a CCP-owned bank in Hong Kong,  the main owner is China Cinda Assets Management.

Epoch Times Photo
A Chinese worker walks past a new property development in Beijing on April 1, 2013. (Mark Ralston/AFP via Getty Images)

People Withhold Mortgage Payments

With more and more “rotten-tail” or unfinished buildings emerging nationwide in recent years, a large number of home buyers have stopped payment of their mortgage loans to banks.

As of July 19, based on incomplete statistics, about 230 project owners have issued compulsory suspension of loans, involving 82 cities in 25 provinces and autonomous regions, said China Real Estate Information Corporation (CRIC), reported HK01 on July 21.

On July 14, thousands of property owners rallied at the Xi’an Banking and Insurance Supervision Bureau, accusing it of ignoring bank violations of housing loan regulations.

Industrial and Commercial Bank of China (ICBC), Huaxia Bank, and Bank of Zhengzhou are suspected of illegally granting loans and supervising funds during the pre-sale of houses, protesters said.

Cause of Unfinished Building in China: Analysis

Fearing a growing crisis over the financial system, China’s real estate regulator is urging banks to fund housing developers so they can complete housing projects and expedite the delivery of homes to buyers, said people familiar with the matter, Bloomberg reported on July 18.

“It’s a vicious circle,” said current affairs commentator Xiao Ruoyuan on his web program, further explaining that people are unwilling to buy “off-plan property,” property before it has been constructed, for fear that it will be a “rotten-tail” or unfinished building in the future. The developers do not have enough money, consequently, there are more and more unfinished buildings. Also, once a project is delayed, the cost of raw materials rises, and the amount of property pre-sold cannot support the completion of the buildings.

In an interview with New Tang Dynasty’s Asia Pacific Desk, The Epoch Times columnist Wang He said the cause of so many unfinished buildings is the result of collusion between banks, real estate companies, and the CCP authorities, who each take a share of the depositors’ money.

Many of the buyers whose buildings are unfinished have stopped making mortgage payments collectively, something they have never done before, which creates a further complication for the CCP. “With the ongoing debt crisis, the government will not have the money to complete the unfinished construction,” Wang said.

Some commentators said that the CCP is unable to suppress the wave of mortgage payment suspensions and will be temporarily adopting a gentle policy to dodge the broader outrage that might occur at the upcoming twentieth congress.

To secure Xi Jinping’s re-election, the CCP will not make the problems bigger before the twentieth congress. It will delay six months to a year, that is, until the victim’s groups can be divided and dismantled, Xiao said.

Xiao estimated that at least 5 or 6 trillion RMB (about $741 billion to $889 billion) is needed to solve the problem of unfinished buildings, but the central government, local governments, banks, and housing enterprises would not offer money or do not have enough money to do so, Xiao said.

The deteriorating, unfinished property construction has increased the asset risk for Hong Kong banks.

Moreover, “the majority of Hong Kong banks’ lending to the Chinese property sector is offshore, which is usually riskier than onshore, given the sources of loan repayment, collateral, and loan recovery issues,” said Moody’s.

Nie Law
Shan Lam