Frozen bank accounts and unfinished homes: China’s ‘desperate situation’
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Ann Scott Tyson Staff writer
Recently, clients of small-sized banks in the central Chinese province of Hunan were horrified to discover that their COVID-19 health codes had been switched to red – meaning they aren’t allowed to travel – in a ham-handed effort to stem growing protests over account freezes at China’s struggling local banks.
The scandal is just one sign of the middle class’s waning confidence in Beijing’s promises of ever-rising prosperity. Chinese homebuyers are also threatening to boycott mortgage payments for some 320 unfinished housing projects across the country.
Why We Wrote This
A story focused onSocial contracts between governments and people must evolve, and China could be reaching such a juncture as its economic boom wanes. How will it navigate change while retaining trust among the key middle class?
Beijing has pressed provincial governments to address the banking and housing-project crises, seeking to avoid setting a precedent by footing the bill. But some authorities have responded with controversial tactics that further undermine people’s trust in government – such as manipulating the COVID-19 health code system and using plainclothes enforcers to beat protesters.
“From the party standpoint, anything that’s organized that’s not under party control is seen as a threat,” says Bruce Dickson, a political scientist at George Washington University. “At the local level, [changing peoples’ health codes] might be a clever strategy to deal with an immediate problem. But ... once you’ve done that, you’ve destroyed so much of the public trust.”
Wu Jian’s collapse of confidence in China’s local banks started with a click on his cellphone.
It was mid-June, and Mr. Wu was at home in the central Chinese city of Wuhan, preparing to go to neighboring Henan province to protest a freeze on his accounts by two struggling banks there that is threatening a big chunk of his family’s savings.
But when the information technology professional checked his health code – a QR code showing COVID-19 risk status – he was shocked to see it had turned from green to red, meaning he was barred from traveling. He soon discovered he was not alone – more than 1,300 frustrated depositors and consumers from around the country, sharing information on China’s WeChat messaging app, had also received unexpected red codes in a ham-handed move by Henan authorities to block anti-bank demonstrations, which had already been breaking out around the province.
Why We Wrote This
A story focused onSocial contracts between governments and people must evolve, and China could be reaching such a juncture as its economic boom wanes. How will it navigate change while retaining trust among the key middle class?
“I was pretty surprised,” Mr. Wu says. “You resort to this kind of a trick to stop people – doesn’t that mean you won’t give us our money back?”
The Henan bank scandal highlights growing concerns over China’s more than 300 high-risk local banks, and it isn’t the only sign of waning trust in a key sector of China’s economy. Recent weeks have also seen a national wave of mortgage boycotts, as people stop or threaten to halt payments on homes purchased in advance as part of now-delayed housing construction.
The confidence of middle-class Chinese like Mr. Wu in Beijing’s promises of ever-rising prosperity is waning, as they are increasingly paying a price for the country’s economic slowdown after decades of debt-fueled growth. Moving to protect their money and property, they are exerting leverage with their pocketbooks, organizing on social media, and even taking to the streets with legitimate demands to safeguard their hard-earned resources.
“One of the new things ... is that it’s a middle-class phenomenon, not the type of labor strike or farmer protest that we’re used to seeing,” says Bruce Dickson, a political scientist at George Washington University. “This is people who’ve got a very legitimate gripe that they put their money down and the builders have not finished their homes to be able to move into. And the last resort is to stop paying,” he says, referring to the mortgage strikes.
Yet some authorities have responded with controversial tactics that further undermine people’s trust in government – such as manipulating the COVID-19 health code system, using plainclothes enforcers to beat protesters, and imposing stiff penalties through China’s sweeping social credit system.
“From the party standpoint, anything that’s organized that’s not under party control is seen as a threat,” says Dr. Dickson, author of “The Party and the People: Chinese Politics in the 21st Century.” “At the local level, [changing people’s health codes] might be a clever strategy to deal with an immediate problem. But ... once you’ve done that, you’ve destroyed so much of the public trust that public health depends on.”
A middle-class mortgage strike
From Liaoning province in the north to Guangdong in the south, Chinese homebuyers are threatening to boycott mortgage payments for some 320 unfinished housing projects in more than 100 localities, according to an online tally of the growing strike.
In China, more than 85% of homes are sold months or years before construction is complete. Many Chinese families invest a large portion of their savings into these homes, encouraged to do so by the government and by decades of steadily rising housing prices. At the heart of the boycott that has surged in recent weeks are buyers’ doubts that debt-strapped developers will ever complete their promised homes.
“People who are actually threatening to not pay are in a little bit [of a] desperate situation,” says Liqian Ren, an economist who hosts a podcast on China and Asian markets and works as a quantitative investment specialist at WisdomTree Asset Management in New York. “Because they are not getting the house they were promised, they have to rent a house on the side and still pay the mortgage.”
And although the mortgage boycott still represents a small share of the overall mortgage market, it and other debt problems could worsen if China’s economic slowdown continues.
Beijing, alarmed by the spreading movement, has started censoring social media discussions about the mortgage strike and deleting shared files tracking its scale.
Yet unless the government intervenes with more concrete steps to boost resources for homebuilders, analysts say, the boycott could snowball as jittery banks withhold credit to China’s troubled property sector, further delaying houses and causing more people to stop paying mortgages.
Real estate makes up more than a quarter of China’s economy, but has been hurt by policies such as a regulatory crackdown on credit and China’s growth-stifling zero-COVID-19 policy. China’s economy grew 0.4% in the second quarter, marking a two-year low.
Who foots the bill?
Beijing has pressed provincial governments to address the banking and housing-project crises, seeking to avoid setting a precedent by footing the bill. “If the central government steps in, the local government has no incentive” to act, says Dr. Ren.
Provincial authorities in Henan and neighboring Anhui province last week started repaying smaller victims of the recent banking scandal – those with deposits of $7,400 or less – and also reportedly pledged to refund deposits of up to $14,800 starting this week. They have also punished five local officials over the scandal.
But China’s highly indebted local governments are in a tight spot. They have been hit particularly hard by the real estate crisis because they depend on revenue from land sales. Meanwhile, the zero-COVID-19 policy has imposed new burdens on local leaders.
“Localities are having to bear the cost of all the COVID testing and other COVID-related policies. That is a big chunk,” says Jean Oi, a professor of Chinese politics at Stanford University. “Their revenues have suffered severely.”
“So as the economy keeps tanking with the continued lockdowns ... the center is going to have to start intervening,” she says. “You can’t just lay it all on localities.”
For his part, Mr. Wu agrees. “We hope the central government can take action, because everyone knows Henan province handles its own problems badly,” he says.
Mr. Wu hopes he will recover the $110,000 he deposited in the Henan banks. But if he does, he vows to never put it back into any of China’s nearly 4,000 small and medium-sized banks.
“If I get the money back, I may put it in the ‘big four’ banks,” he says, referring to China’s largest national banks. More than likely, though, “I will exchange it for cash and keep it in my house,” he says with a laugh.
