The Dominoes of Distrust: How a Social Media Spark Ignited a Bank Run in China

The palpable unease surrounding China’s financial sector reached a fever pitch when a bank run rattled the Bank of Cangzhou in Hebei province. The panic had an unlikely instigator: a social media post that falsely claimed the potential downfall of property giant Evergrande would render the bank insolvent. What unfolded was nothing short of chaotic—a blend of public anxiety, police intervention, and a financial system caught in the crossfire of misinformation and real consequences.

On October 7, 2023, a social media post went viral, suggesting that Evergrande’s potential bankruptcy would spell financial doom for several Chinese banks, including the Bank of Cangzhou. The claim was that Evergrande owed a whopping 3.4 billion yuan ($466 million) to the bank. The public took this assertion to heart, with hundreds of jittery depositors lining up at the bank to withdraw their savings.

Quick to address the escalating fears, the Bank of Cangzhou issued a clarification just a day before the bank run. The bank declared that its outstanding loans to Evergrande and its affiliates were a mere 346 million yuan, a fraction of the amount that the social media post had reported. This revelation aimed to assure customers that its financial situation was far from precarious. On the contrary, the bank had sufficient collateral in lands and properties to cover any potential losses related to Evergrande.

Yet despite being at the eye of this financial storm, the Bank of Cangzhou has consistently displayed a robust balance sheet. The first half of 2023 saw the bank report an operating income of 2.317 billion yuan and a net profit of 669 million yuan. Moreover, its total assets at the end of the third quarter stood at an impressive 246.5 billion yuan, with a net profit of 1.211 billion yuan.

With real-world consequences at stake, law enforcement in Cangzhou swiftly moved to arrest several individuals accused of fanning the flames of financial panic by disseminating false information about the bank’s solvency. It was a move that highlighted the severity of how misinformation can have ripple effects on financial markets and individual lives.

Yet the spectre of Evergrande looms large over the incident. The property developer’s ongoing crisis continues to send shockwaves across various sectors in China. Take Country Garden, another major Chinese property developer that recently missed a debt payment. Or consider the plunging HY real estate index in China, all of which amplifies concerns over the stability of the country’s financial system.

This backdrop makes the government’s recent actions even more telling. With indications that China might be heading toward a recession, Beijing appears to be opening its policy quiver. Plans for a sizeable stimulus package have been announced, and last month saw a cut in interest rates on nearly $6 trillion worth of mortgages. It’s evident that policymakers are pulling every lever they can to avert a broader financial calamity.

The Bank of Cangzhou’s brush with a bank run serves as a cautionary tale and as a microcosm of broader financial instability in China. Amid an Evergrande crisis, other property developers missing payments, and signs of a slowing economy, the story is a stark reminder of how volatile and interconnected financial ecosystems can become when misinformation seeps in. The situation underscores the urgent need for institutions to maintain transparency and nip any misleading narratives in the bud, to avert the kind of panic that can cause real-world repercussions.

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