Not so long ago all loans and deposits in China were considered risk free. That meant no risk of default and interest rates of around 10 percent.
This concept changed drastically after a couple of corporate bonds and other wealth management products actually defaulted in 2014. The new concept of risk soon spread to Chinese depositors, who staged a small-scale bank run on a bank in Eastern China Monday, which continued into Thursday.
The run started with the rumor that a client’s demand to withdraw $31,000 in cash was not met.
Officials have since tried to quell rumors of Jiangsu Sheyang Rural Commercial Bank going bust. The governor of Sheyang County, Tian Weiyou, promised depositors they would get their money back and that the People’s Bank of China, the central bank, would protect them, according to a video posted on the local government’s website.
This statement comes in light of the fact that China does not have a deposit protection scheme like the United States and other Western countries.
The bank itself also tried to reassure depositors by posting a message board saying, “Savers’ deposits are protected by law. There is no situation in which we cannot meet cash withdrawal demands. Depositors must not listen to rumors and cause unnecessary panic,” according to the Financial Times.
The bank’s chairman, Zang Zhengzhi, said corrupt asset managers are to blame. “Because ordinary people here have been scammed by the credit guarantee companies, when they hear that the banks might also have problems, they come right away to pull their cash out,” he said on China’s state radio.
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