This week, the story of a Henan banking scandal and depositors’ Health Codes suddenly turning red triggered online discussions in China and even made international headlines.
In between online deposit products, financial platforms, regional banks, and Health Code systems, the story is a bit messy. Here, we’ll explain the story and its latest developments.
DUPED DEPOSITORS
The story starts in April of this year when people discovered that they were unable to withdraw money they had invested in online deposit products offered by various smaller regional banks.
Some people had deposited money via the Baidu money app (Du Xiaoman Financial 度小满), others had used another third-party platform, intermediaries, or one of the mini-programs run by the banks themselves.
By early May, it had become clear that dozens of depositors who once thought they had invested their money wisely had actually been duped. Four of the banks involved are located in Henan province, namely: the Yuzhou Xinminsheng Village Bank (禹州新民生村镇银行), Shangcai Huimin County Bank (上蔡惠民村镇银行), Zhecheng Huanghuai Community Bank (柘城黄淮村镇银行), and the Kaifeng New Oriental Country Bank (开封新东方村镇银行).
But there are also other smaller banks involved, including Guzhen Xinhuaihe Rural Bank (固镇新淮河村镇银行) and Yixian Xinhuaihe Rural Bank (黟县新淮河村镇银行) in Anhui.
As reported by South China Morning Post by late May, multiple customers had confirmed that they had not been able to withdraw funds either online or in person.
The sudden apparent closure of their withdrawal channels set off a wave of panic among depositors, who then protested in the provincial capital of Zhengzhou on May 23rd, demanding the return of their money.
Yang Huajun (杨华军), deputy director of the Henan branch of China’s Banking and Insurance Regulatory Commission (CBIRC), arrived at the scene of the protests and – speaking through a megaphone – promised the demonstrators that as long as their funds were “legally” deposited, they would be protected by law.
Many depositers, however, were unsure of whether or not their deposits were actually made in a “legal” way and what the definition of “legal” entailed in this case.
Over the past years, Chinese smaller rural banks have partnered with online platforms, often offering relatively high returns, in order to boost their deposit-reliant funding base.
In December of 2020, platforms Alipay, Du Xiaoman Financial, JD.com and Tencent Wealth Management all suspended the sale of online deposit products via their financial apps in light of heightened scrutiny from regulators concerning funds raised by unstable smaller lenders.
The smaller banks that are now at the center of the recent financial scandal then (illegally) reached out to their existing customers directly after December 2020 and convinced them to download the banks’ apps in order to deposit even more money.
One of the persons duped is Mr. Sun from Shenzhen. As reported by Sina Finance, it was in 2020 when Sun came across a seemingly attractive online saving product via the Du Xiaoman Financial app. Although Sun was not familiar with the banks in question, namely the Yuzhou Xinminsheng Village Bank and Shangcai Huimin County Bank, he could not resist the deposit interest rate of 4.6%, which was much better than what the big banks were offering at the time.
In early 2021, Mr. Sun received a text message from Yuzhou Xinminsheng Village Bank saying that although the financial products had been taken offline, users would still be able to deposit through the bank’s own online application. Mr. Sun ended up depositing his entire savings into the Henan-based rural bank, thousands of miles away from his own home.
And then, earlier this year, Sun came across the news that Henan New Wealth Group, the primary shareholder of all banks involved, was under investigation for fraudulous practices. When he opened up his online financial application, there was nothing to see but a notice that the system was under maintenance. Sun could no longer access his funds. Hundreds of other customers were seeing the same empty screens.
According to media reports, the current suspected scam case affects some 400,000 customers of seven local banks and involves a money sum of 40 billion yuan ($5,6 billion).
IN THE RED
As thousands of depositors have been fighting to recover their savings over the past two months, they were duped a second time earlier this week. Dozens of affected depositors claimed they had seen their Health Codes turn red without any logical reason on June 13 or June 14 – the day of a planned protest.
In China’s Covid era, the Health Code system has become a pivotal tool in the country’s battle to contain the spread of the virus. The Health Code system is embedded in various apps, most importantly in Wechat and Alipay, and uses various data to assess an individual’s exposure risk. There is not one unified national Health Code application; they are developed by different actors and their management is different across Chinese provinces and cities.
If there is no detected risk, an individual is assigned a Green QR Code and is allowed access into any venue or location where a QR code scan is mandatory. With a Yellow Code, you should stay home for a week, and Red Code means you are high risk and need to quarantine for 14 days – this severely limits your freedom to move around and travel.
On June 13th, many affected investors saw their Health Code turn red when arriving in Zhengzhou, where they were allegedly coming to retrieve their savings and protest the injustice they suffered. The QR code color change was unexpected and strange, considering that there were no new reported Covid cases in their vicinity and also considering the fact that accompanying family members who made the exact same journey did not see their Health Codes change.
This raised suspicions that the duped depositors were specifically targeted, and that their Health Codes were being manipulated by authorities.
CNN reported that many distributors who had come to Zhengzhou were taken to a guarded quarantine hotel before being sent back to their hometowns via train the next day. According to a Chinese media report by Nanfang Daily, the depositors were not even asked to do nucleic acid testing and were told by local staff that they would get their Green Code back as soon as they left Henan.
Various media report that minimally 200 depositors saw their Health Code change from Green to Red earlier this week.
“OPERATION CODE RED”
The curious case of the Henan depositors scandal and the changing Health Code colors has become a trending topic on Chinese social media this week.
The topic of the duped depositors was also discussed online before this week, and it brought back memories of earlier financial scandals, such as the P2P chaos that occurred back in 2018.
But the topic of depositors’ Health Codes changing to Red is something that attracted much wider discussions on the apparent abuse of a system that has now become a part of everyday life for people in China’s Covid era.
The main proof for people that the Henan depositors were targeted in this apparent “Operation Code Red” is that, as mentioned before, the family members that were traveling together with the duped depositors never saw a change in their Health Code: those people who were listed on the affected regional banks’ depositors list were seemingly singled out and purposely targeted.
“Who is in charge of changing the Health Code colors?” became a much-asked question on Weibo, with many blaming local Henan authorities for abusing their powers to try and stop protesters from raising their voices in Zhengzhou. One Weibo post on this issue received over 1,6 million views. Meanwhile, Henan authorities still said they did “not understand” what had happened.
“It must be American hackers who did this, right?”, some Weibo commenters wrote, putting in a sarcastically smiling emoji, with others adding: “No, the aliens did this – it must have been the aliens!”
Others wrote that the situation at hand should be simple to figure out: “There is no way that this is an oversight or a data error. If you want to know who did this, look at who or which department has the authority to manage both epidemic prevention measures as well as finance affairs.”
Many comments also showed a sense of disillusionment with how China’s Covid management affects the people: “After seeing the chaos during the Shanghai lockdown, this does not even surprise me anymore,” one person wrote on Weibo: “All we can do is pray that it won’t happen to us.”
“Why is Henan’s “messy Red Code” incident so extremely vile and scary? Because once a person or institution holding public power looks at you in a bad light, they can give you a Red Code and take you away, in the name of legality. This is the evil that comes from unmonitored power,” one blogger from Anhui wrote.
Other people also worried about foreign media reporting on this issue, saying this incident is being used to cast China in a bad light while local authorities are to blame: “We should unify the Health Code system into a national system in order to avoid this from happening again.”
According to Chinese state media reports, the case has now been forwarded to the Health Commission of Henan Province for further investigation.
We will keep tracking upcoming developments. Meanwhile, check out our other reports on trending topics relating to China’s banking and finance here. For more about Covid-related trending topics, check here.
By Manya Koetse
With contributions by Miranda Barnes
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References (all other sources included in hyperlinks)
Lee, Amanda. 2022. “Rural Banks Freeze Customers’ Accounts.” South China Morning Post, May 31.
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