China’s economy continues to decline, with nearly 200 small and medium-sized banks deregistered in 2024. Among them, 42 brokerage firms listed on the A-share market saw a near-30% shrinkage in their investment banking business income, with many institutions facing losses. Experts point out that against the backdrop of the trade war between the United States and China, the already frail Chinese financial market will be plunged into crisis.
The continuous downturn in the Chinese economy has impacted the banking system significantly. In 2024, a total of 199 small and medium-sized banks in China were deregistered, mainly rural financial institutions, surpassing the total number from 2021 to 2023 by a large margin.
According to reports from “Caixin,” data from enterprise warning alerts show that among the 199 bank branches deregistered in 2024, there were 36 credit cooperatives, 56 rural commercial banks, 6 rural mutual aid funds, 100 village banks, and one city commercial bank. Of these, 89 were approved for dissolution, 102 for merger, and 8 for business closure.
In China’s six major banks, except for the Agricultural Bank of China, the number of offline branch offices continued to shrink, decreasing by nearly 361 in total in 2024.
On May 12th, Sun Guoxiang, a professor at the Department of International Affairs and Business at the University of South China, told The Epoch Times that in 2025, China’s financial system is facing multiple pressures. “Due to the slowing economic growth and the continued escalation of the real estate crisis, the risk in the banking system is rising, intertwined with policy interventions, creating a complex situation.”
He stated that the devaluation of real estate collateral has led to a surge in non-performing loans, hitting small and medium-sized banks the hardest. State-owned banks are experiencing declining profits, and the adequacy of core capital is being tested. Some regional banks are facing a liquidity crisis, with real estate-related loans still accounting for over 25% of the total bank assets, as falling house prices exacerbate the risk of bad debts.
“At the moment, there is indeed a wave of bank failures, mainly targeting small and medium-sized enterprises, such as rural commercial banks, rural credit cooperatives, and village banks,” said Sun Guoxiang, pointing out that the disappearance of corporate banking qualifications will have a significant impact on the local financial ecosystem. The acceleration of branch closures among the six major state-owned banks reflects the overall operational pressure facing the banking industry. The banking system will continue to be under pressure in 2025, with real estate crisis and banking fragility remaining the biggest threats.
Chinese capital and financial expert Xu Zhen told The Epoch Times that various industries are currently facing a wave of bankruptcies. “Due to the characteristics of the banking industry, its bankruptcy cycle will lag behind the wave of bankruptcies and restructuring in the real economy, but it will not be absent. The next step will spread from village banks and credit cooperatives to joint-stock banks. The influx of a large amount of capital into the bankruptcy and restructuring industry in China recently illustrates the difficulties facing the Chinese economy.”
In addition to the banking sector’s pressure and the wave of closures, there has been a significant contraction in the investment banking business income of brokerage firms. Recently, 42 A-share listed brokerage firms completed their 2024 annual reports.
According to Wind data, the total net income from transaction fees for the 42 brokerage firms’ investment banking business amounted to 30.608 billion yuan, a 27.4% year-on-year decrease.
In 2024, the number of IPOs on the A-share market was only 100, a sharp decline of 68.05% year-on-year, with a total fundraising amount of 67.353 billion yuan, an 81.11% decrease. The scale of secondary offerings reached 223.12 billion yuan, down 70.03% year-on-year. With a sharp contraction in the equity financing market directly impacting the investment banking business of brokerage firms.
Top brokerage firms are under significant pressure, with a sharp decline in income. Citic Securities’ investment banking income saw the largest decrease at 48.08%, with net transaction fee income of only 2.49 billion yuan. Small and medium-sized brokerage firms fared even worse, with 14 investment banking divisions reporting negative profits, and Founder Securities’ investment banking division suffering the most severe losses, amounting to 593 million yuan, primarily due to “selling off” real estate.
Xu Zhen stated that there are two main reasons for the sharp decline in brokerage performance. Firstly, to stabilize the A-share market and maintain stock prices, the Chinese government has restricted trading and selling, leading to a significant reduction in brokerage commissions. Secondly, the China Securities Regulatory Commission’s guidance limited the issuance of IPOs, reducing the supply of A-shares and thereby alleviating the pressure on stabilizing the market, ultimately resulting in a substantial contraction in the investment banking business of brokerage firms.
He stated, “The Chinese government’s efforts to stabilize the A-share market reflect that the market has already malfunctioned and can no longer effectively reflect economic changes. Based on the current economic recession performance, the Shanghai Composite Index should be below 2000 points as a reasonable level, but it’s currently around 3300.”
At a time when China’s economy is in a slump, impacting the financial market significantly, the US-China trade war has intensified, pushing the already fragile financial market into crisis.
Sun Guoxiang stated that as the US-China trade war escalated to a 145% tariff rate, bilateral trade volume declined sharply, accelerating industrial chain restructuring and exerting multidimensional pressure on the Chinese financial system, especially the banking industry. The decoupling of US-China trade has now transmitted from the trade level to the financial system, leading to regional bank crises in the short term, as well as capital outflow pressures and exchange rate fluctuations, posing three major risk points.
Xu Zhen remarked that the continued decline in China’s economy combined with the US-China trade war has severely damaged China’s economic engine – foreign trade exports. The foreign trade crisis has spread to various industries, with the financial industry being one of the most affected areas.
Over the weekend (May 10-11), the US and China held trade negotiations in Geneva, Switzerland. Subsequently, both sides indicated that the talks made “substantial progress” and reached consensus.
According to a joint statement released on May 12, both parties agreed to significantly reduce tariffs within the next 90 days. The US tariffs will be reduced from 145% to 30%, while China’s tariffs will drop from 125% to 10%. Both sides also agreed to initiate ongoing negotiations and continue discussions on economic and trade relations.
President Trump emphasized on the 12th that if the US and China fail to reach a trade agreement within 90 days, tariffs against China will be reinstated, but not at the previous 145% level before the Geneva talks. He also mentioned that after both parties agreed to temporarily reduce tariffs on most goods, China “agreed to open up to American companies.”
Sun Guoxiang remarked that the abrupt halt in exports and the collapse of the industrial chain are forcing China to face its economic challenges. The substantial progress in the US-China trade negotiations reflects that the pressure on the Chinese economy is nearing a critical point.
Xu Zhen also stated that the substantial progress in the US-China trade negotiations indicates that the Chinese economy is critically ill, posing a threat to the political security of the Chinese Communist Party, forcing them to the negotiation table.