China’s Next Major Crisis: Wave of Bank Failures Emerging

A financial explosion involving 40 billion yuan in deposits at village banks in Henan has drawn widespread attention. (Photo courtesy of interviewee)

[Dajiyuan] As China's real estate slump drags on, the banking sector is facing growing risks. After the Chinese Communist Party (CCP) lifted price restrictions on housing, banks holding real estate-backed assets are now under immense pressure, potentially leading to a wave of bank failures. China’s six major banks are closing more branches, and data suggests early signs of a banking crisis are emerging.

Wave of Bank Closures: Early Signs?

With China’s economy continuing to decline, its banking system has inevitably come under pressure. Data shows that nearly 200 small and medium-sized banks were deregistered in 2024, more than the combined total over the past three years.

According to Yicai Global, data from Enterprise Early Warning shows that by 2024, a total of 199 small and medium-sized banks in China had been deregistered, mostly rural financial institutions. This number far exceeds the total from 2021 to 2023.

Among the 199 banks and branches deregistered in 2024, 36 were credit cooperatives, 56 were rural commercial banks, 6 were rural mutual aid cooperatives, 100 were village banks, 1 was a city commercial bank, Specifically, 89 were approved for dissolution, 102 for mergers, and 8 were deregistered with the industry and commerce department.

Of China’s six major banks, all except the Agricultural Bank of China have continued to shrink their physical branch networks, reducing a combined total of nearly 361 branches in 2024 alone—an average of one closure per day. However, the CCP state media euphemistically calls this “slimming down.”(Further reading: Wave of executive resignations in China – a precursor to financial collapse?)

Real Estate Decline Continues

China has been facing a prolonged real estate crisis. Falling property prices have caused the biggest wealth contraction among ordinary people in the past decade. This downward trend has continued into 2025 and shows no signs of improvement.

According to an April 16 report by The Wall Street Journal, newly released data shows that home prices in China declined again in March.

Compared to the same month last year, average residential sales prices in China’s major cities fell by 5.0% in March, slightly better than February’s 5.2% decline. Among 70 large and mid-sized cities, 68 reported year-over-year price drops, the same as in February.

Data from China’s National Bureau of Statistics shows that 41 cities saw month-over-month housing price drops in March, compared to 45 in February. (Further reading: Abandoned and sold off cheaply – five-star hotels in China being discarded)

Beijing Letting Things Slide

In response to the uncontrollable economic slump and falling property prices, the Chinese government has effectively taken a hands-off approach.

According to data from China Real Estate Network, an increasing number of cities stopped regulating prices for new commercial housing in 2024, allowing developers to set their own prices.

Incomplete statistics show that at least 18 cities have cancelled or relaxed price restrictions on housing.

Banks Under Pressure from Real Estate Collateral

As property prices spiral downward and more homebuyers default on their loans or stop repayments entirely, banks holding real estate-backed collateral are under severe strain.

First, the sharp drop in property prices has caused the value of collateral to plummet. Massive loan defaults and abandoned construction projects are leading to huge loan losses for banks.

Second, during the property boom, banks frequently re-loaned based on these same collateral assets. Now, in a widespread economic downturn, banks face broken cash flows.

The only hope is for the central bank to “print money” to bail out the system, but that would likely worsen the situation further.

Thus, a real estate crisis is certain to lead to a banking crisis.

Prediction Becomes More Difficult

As China’s economic data increasingly reveals the scope of the crisis—and as fake data becomes harder to justify—the CCP has stopped publishing hundreds of data sets. This makes it far more difficult for analysts to accurately gauge the Chinese economy or predict the timing and severity of potential crises.

According to a Wall Street Journal report on May 5, Beijing has stopped releasing hundreds of data points that researchers and investors previously relied upon. These data sets vanished without explanation.

Responsible Editor: Ren Zijun