Police in Xuchang city of Henan province arrested 234 suspects tied to the scam and made “significant progress” in recovering the stolen money, according to a statement late on Monday. Police have said that a criminal gang led by suspect Lv Yi illegally controlled four rural lenders including Yuzhou Xinminsheng Village Bank, offering rates as high as 18% to attract funds that officials say amounted to 40 billion yuan ($5.8-billion). 

Local authorities said they are repaying more victims, on top of the 18 billion yuan doled out as of mid-August. Investors with deposits of 400,000 yuan to 500,000 yuan will be repaid starting early on Tuesday, the authorities said. Those who have lost more will be getting an initial sum of 500,000 yuan with the remainder reserved for now.  

Hundreds of protesters took to the streets in Henan earlier this year after being denied access to their deposits and investments from the rural banks. The scam dealt the biggest hit to confidence in China’s $52-trillion banking system since 2019, when the government seized control of a lender in Inner Mongolia. 

The Communist Party is gearing up for its 20th congress later this year, where President Xi Jinping is expected to secure an unprecedented third term. Social stability ahead of the meeting is being put at a premium as slowing economic growth, Covid lockdowns and a rumbling property crisis are creating hardships for broad swathes of the population. Regulators were urged to maintain stability in the financial markets and severely crack down on financial crimes at a Politburo meeting in late July. 

Although village banks aren’t allowed to seek deposits from outside their local area, the lenders involved in the scam marketed their deposits online via third-party platforms, making it a national problem. 

China has been trying for years to root out problems in its troubled rural banking system, a network of some 3,800 lenders which hold the lowest capital on hand against risky assets among peers. Beijing has raised 64.6 billion yuan in the first batch for a stability fund to bail out troubled financial institutions. BM