Many depositors in mainland China have been living in dismay after several rural banks suddenly freeze their accounts. Upon further digging into past reports, Chinese media Xin Tang Ren found alleged links between corrupted officials and leadership behind the problematic banks.
In a report on June 8, the outlet said that since mid-to-late April, many local banks in Henan, Anhui provinces, and other places in China have successively stopped customers from withdrawing their funds. In that, four banks in Henan and two banks in Anhui have been preventing withdrawals since April 18.
The names of these regional banks were Xin Minsheng Rural Bank, Shangcai Huimin Rural Bank, Zhecheng Huanghuai Rural Bank, Kaifeng New Oriental Rural Bank, Guzhen Xinhuaihe Rural Bank, and Shexian Xinhuaihe Rural Bank.
The shareholder of these banks is Henan Xuchang Rural Commercial Bank. Xuchang City Investment Corporation is its controller. The group is directly managed by Xuchang Finance Bureau.
The 2021 evaluation report of Xuchang City Investment Corporation clearly stated that the company is a state-owned firm directly under the Xuchang Municipal Government.
On May 25, Xuchang City Investment Corporation said that Xuchang Rural Commercial Bank is only the major shareholder of these regional banks, including Kaifeng New Oriental Rural Bank. It declined to have had any real control over the operation of these banks.
It also stated that Xuchang Rural Commercial Bank has no equity investment, capital, or business relationship with Henan New Fortune Group.
Yet, state media Xinhua News Agency reported that on May 18, the China Banking and Insurance Regulatory Commission said that Henan New Fortune Group, a shareholder of four rural banks in Henan, took over public funds through internal and external collusion, the use of third-party platforms, and fund brokers.
The statement from Xuchang City Investment Corporation was inconsistent with that of the Chinese government.
Xin Tan Ren noted from public information that Henan New Fortune Group was established in 2011 with a registered address in Zhengdong New District, Zhengzhou City, with a registered capital of 116 million yuan (17.3 million dollars.)
Its business scope covers investment in industries, investment, and management of enterprises. The company was deregistered on February 10, 2022. The firm has two shareholders, Yu Zefeng, who owns 80% of the company’s shares, and Lin Hengsen, who owns 20% of the company’s shares.
On the surface, Yu Zefeng is the actual controller, but The Paper reported that in the 2018 bribery case of the former vice president of Zhengzhou Bank Qiao Junan, the judgment stated that Lu Yi was the chairman of New Fortune Group.
Lu Yi was said to have borrowed more than 9 million yuan (34,000 dollars) from Qiao Junan, then bribed him with more than 23 million yuan (3.4 million dollars.)
Coincidentally, Henan New Fortune Group was not included in the list of shareholders of the six banks that had been freezing deposits. But two months after the company was deregistered, they closed online withdrawals, transfers, and other funding channels.
Xin Tang Ren suspected that the group may have been allegedly the invisible shareholder of those rural banks.
Furthermore, in February this year, when Cai Esheng, vice chairman of the China Banking Regulatory Commission, was arrested for accepting bribes, Lu Yi was arrested to assist in the investigation. Finance Sina reported on May 31 that he fled to the U.S. after his release, around the time the rural banks started suspending deposits.
In an interview with media outlet Da Ji Yuan, Mike Sun, a North American private investment consultant and China expert, said the Chinese government has been tightening its crackdown on the banking and financing sectors. He believed rural banks have been suspending funds withdrawal for that reason. In Henan and Anhui, it may have been harder to control the system there, which caused the series of blockages.