In July, videos of tanks rolling onto the streets of Henan circulated online, with many a post drawing reminiscence of the Tiananmen Square Massacre.


In July, videos of tanks rolling onto the streets of Henan circulated online, with many a post drawing reminiscence of the Tiananmen Square Massacre. However, while the video circulated was later refuted, the comparison beyond basic visual compatibility remains ill-drawn. Both protests have very different causes and have emerged under different circumstances. Yet, attracting global attention and condemnation, the recent incident has put the current Chinese banking crisis – which has led to people being unable to access their savings – under the spotlight. As the 20th National Congress approaches, this crisis raises many questions: What does this crisis mean for the Chinese economy? What has spurred its advent and how does this reflect on Xi Jinping and the upcoming National Party Congress (NPC)?

What has spurred the advent of such a crisis? 

Much of the Chinese middle class invests in real estate. In China, the real estate sector accounts for around 24% of gross domestic product (GDP) – almost a quarter of the nation’s GDP. For years, the government has tried to diffuse the debt fiasco which grew conjointly with the boom in real estate after 1998. Apprehensive of the financial disaster that might come through, if the situation remains unchecked, in 2020, the Chinese government introduced a policy to oversee and handle loan regulations for the real estate sector, commonly known as the “three red lines” (三道红线) requiring developers to meet three criteria– liability to asset ratio lower than 70 percent, net debt to equity ratio less than 100 percent, and a ratio of cash to short term borrowings less than 1. 

In 2021, developers such as the China Evergrande Group – one of the largest property developers in China – defaulted on their interest payments, eventually leading to the slump of the entire industry. By June 2022, the situation worsened: sales and home prices fell, construction dropped, property loan growth slowed and consumer confidence weakened. Protests erupted across the country over the mortgage crisis and banking crisis, despite the market exhibiting signs of stability.                

China’s financial system is under extreme stress, brought on by its “poor capital turnover”, liquidity stress, and global and domestic economic slowdown, brought about by the dynamic zero-COVID policy, the Russia-Ukraine conflict, etc. causing global anxiety over China’s banks and real estate market. Increased systemic importance and interconnectedness of Chinese banks in the global financial system deepen spillover risks which may adversely affect global financial stability. Similarly, the Chinese real estate market is closely intertwined with the global market through “raw material imports and development financing”. A faltering Chinese economy, brought about by a struggling property market that would worsen the banking crisis, would have global consequences.           

An Economy in Trouble 

On the 10th of July, over a thousand furious customers staged a mass protest at a Bank of China branch in Henan, demanding their savings be returned. The protestors were beaten up by a violent mob of unknown men in white shirts. This is one in an array of recent protests which are linked to the banking crisis in China this year. Local banks in China have been plagued by systemic issues and riskiness, caused by increased housing prices, policy uncertainty, and shadow banking. After the global financial crisis, smaller banks and financial institutions were found to have a greater influence on the interconnectedness and stability of the Chinese banking sector. 

Henan’s financial crisis emerged from its provincial capital Zhengzhou, which is considered “ground zero” of the crisis. Over 40 billion yuan is missing from bank deposits in Henan which is the home province of Evergrande Group’s founder Xu Jiayin. Back in April, four rural banks in Henan – Shangcai Huimin County Bank, Yuzhou Xinminsheng Village Bank, New Oriental Country Bank of Kaifeng, and Zhecheng Huanghuai Community Bank – and one in Anhui – Guzhen Xinhuaihe Village Bank – notified depositors that as their accounts had been frozen, they would not be able to withdraw money. Further investigations revealed that a private firm, Henan Xincaifu Group, had stakes in all of these banks and had embezzled funds through the use of fabricated loans and internal and external collusion.

The situation in central China has been aggravated by the severe COVID-19 lockdowns and the slump in the real estate market. Furthermore, not only does central China’s Henan have to witness the unraveling of the nation’s “biggest bank scam”, but it simultaneously also has to deal with the mortgage crisis as clients boycott loan payments, given that developers find it difficult to complete and deliver unfinished housing projects. The increasing mortgage boycotts have led authorities to be concerned that more homebuyers will follow suit. Lenders now have to deal with both cash-strapped developers and homebuyer and supplier defaults. The refusal to make loan repayments has resulted in losses being incurred in bank shares, indicating that China’s property crisis will bleed over to the financial system as well. 

According to Jefferies Financial Group Inc. analysts’ estimate, a full default on the stalled projects would lead to an influx of 388 billion yuan ($58 billion) in non-performing loans. Nevertheless, 15 Chinese banks, including China’s largest mortgage lender, China Construction Bank Corp., disclosed that the “risks are controllable” as their exposure to delayed projects has been limited. Still, there remains the possibility of instability in the banking system which could strain China’s economic growth. 

Beijing faces a dilemma in dealing with the two-pronged problem– For one, easing lending regulations for homebuyers may lead to them taking unfair advantage of implicit government guarantees. On the other hand, restrictions on bank withdrawals might make matters worse by debilitating an already unstable banking system entangled with the real estate sector at the core of the matter. 

CCP’s Response to the Financial Crisis

According to a Bloomberg report, an emergency meeting was held between the Chinese Ministry of Housing and Urban-Rural Development, major banks, and financial regulators to discuss the growing mortgage crisis. These events have prompted local authorities to set up task forces to focus on resuming the completion of incomplete projects and mitigating the systemic risks posed by defaulters. 

Chai Xin, a financial markets commentator said that the Chinese Communist Party (CCP) is most concerned with “wavering public trust” in the Chinese banks. After the protests outside the China Banking and Insurance Regulatory Commission (CBIRC) in Shaanxi on the 14th of July, authorities have moved to reassure citizens that they will be compensated and have promised stricter regulation of pre-sales of houses, to retain public confidence in the banks. This is underscored by the fact that the boycotts are politically sensitive as the CCP covets social stability above anything else, before the upcoming NPC. 

The CCP has made attempts to allay concerns about the banking crisis amidst the current mortgage crisis in Henan. A working team has been set up, consisting of the Henan Asset Management Company (AMC) and the state-owned Zhengzhou Real Estate Group, to address and curb the crisis ahead of the 20th National Congress of the CCP. The team will focus on reinvigorating stalled projects, restructuring businesses, and ensuring the completion of housing projects. Li Keqiang, the Premier of the People’s Republic of China, has been constantly engaged with the local authorities of Henan, to fix the current crisis. Sun Tianqi, the director of the Financial Stability Bureau of the People’s Bank of China, has stated that the Party is guiding local governments and banks to respond to the ongoing crisis in a manner that fulfils their duty to the people appropriately. He also stated that “99% of China’s banking assets are stable and under safe parameters”.

It can be observed that the Party is attempting to downplay the current crisis and ease tensions flared up by the protests. Moreover, through the actions taken by the Party to reverse the damage caused by the crisis, one can recognise that the words and actions of the Party appear contrary to each other. Bejing seems to be downplaying the crisis for its global audiences as well.  Given that China houses some of the world’s largest banks, there is increased global attention on the Party’s response to the crisis amidst concerns about a possible recession.  

How does it reflect on Xi Jinping?

Unlike other forms of government, China’s political structure ensures the CCP’s position on top of the political hierarchy. The CCP’s powers expand beyond the political realm; having control over the market, the judiciary, and more, with its Chairman, Xi Jinping, at the center. The Party has also decentralised its rudimentary roles to local leaders that are part of the Party, localising accountability to the local government. 

As the Henan protests continue, protestors have made it clear that they are “against the corruption and violence of the Henan government”. They have not mentioned the Communist Party of China, instead, they have invoked a sense of patriotism in their protests and have used Xi’s “Chinese dream” slogan to put forth their appeals to the central government and protest the local government’s crackdown.

Lou Yansheng wrote a letter to the public, addressing the protestors. In the letter, Lou reminded the protestors about Xi’s commitment to ensuring the betterment of the people and that the Party became a better leader under Xi’s guidance. Lou informed the protestors that Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era must be upheld and adhered to at the highest level.

The letter also highlighted the steps Xi has taken for the progress of Henan through comprehensive reform, uplifting people’s lives, and developing the region. Lou’s letter gives an interesting insight into Xi’s authority and leadership – throughout the letter Xi’s policies and Thoughts on Socialism with Chinese Characteristics are made essential to adhere to as protests continue. Moreover, the letter reassured the protestors that Xi is observing the situation closely and urged them to keep their complete trust in Xi and the Chinese government’s ability to contain the crisis.  

Xi Jinping, sitting atop the political hierarchy, enjoys a lot of public trust due to China’s political past. As witnessed even with the previous administrations, public trust in the CCP did not falter during the Great Leap Forward or the Cultural Revolution and it is unlikely to shake in the current crisis. 

According to a study conducted by Tianjian Shi, Chinese citizens have a lot of trust and belief in their political institutions, expressing extreme trust in the CCP, the People’s Liberation Army (PLA), and the NPC. The study also found that people had a lot of distrust towards local governments, explaining why Chinese citizens have localized their protests. Hence, the Party  remains independent from protests against the local government, despite having an overarching control over the entire political chessboard. Nonetheless, civilian protests of such a scale and the impending threat of bank runs are likely a hurdle in the CCP’s quest for realising China’s “rejuvenation”. 

As the ongoing banking crisis in Henan unfolds, its impact on the larger political future for Xi Jinping and the CCP remains to be seen. Yet, it can be assumed that based on the emergency created, Xi and his Party will look to take control of the narrative and incorporate the financial tensions in the agenda building up to the 20th CC. Presently, as seen with Xi’s travels within China in the past year, maintaining unity and stability in the “firm leadership of the Party”  is critical to the political environment leading up to the 20th NPC. Should the ongoing crisis continue, along with already high public dissatisfaction with the zero-COVID policy; protests against local governments could intensify, forcing Xi to take action to retain public trust.


Ahana Roy is Research Associate and Chief Operations Officer at Organisation for Research on China and Asia (ORCA). She is a postgraduate in Political Science with International Relations from Jadavpur University. Her areas of interest include non-traditional security studies with a focus on gender and sexuality studies, society, and culture in China specifically and East Asia broadly. She can be reached on Twitter @ahanaworks and her email

Siddhant Nair is a post graduate student in Interdisciplinary Studies and Research, specializing in International Relations. He has previously interned in ORCA, The Gateway House and Chennai Center for China Studies. You can find him on twitter @siddhant__nair

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