Depositor Protection in the Chinese Bank Insolvency Regime: How has China’s Deposit Insurance Scheme Delivered in Bank Failures?

China’s deposit insurance scheme was established in 2015 and was first tested in 2019 when Baoshang Bank was formally declared insolvent. This article provides the first analysis to scrutinise both the legal framework and the operation of the deposit insurance scheme in China. Specifically, the article examines the implementation of China’s deposit insurance scheme in two recent events, the insolvency of Baoshang Bank and the collective bank runs taking place in Henan and Anhui provinces, which have not been extensively covered by existing literature. The findings of this article affirm that the current deposit insurance scheme does provide a fundamental level of protection to depositors. However, many uncertainties and weaknesses remain, particularly regarding the difficulty of initiating depositor compensation, the uncertain function of deposit insurance funds, the vague rights and responsibilities of the Chinese Deposit Insurance Fund Management Corporation, and the maximum level of payment. Moreover, there are two barriers pinpointed which may substantially hinder the development of the Chinese deposit insurance scheme. First, traditional beliefs in state guarantees for banks and policies aimed at maintaining social stability create an environment where banks in China may rely on implicit state support. Second, the unsound bank insolvency mechanism complicates the depositor compensation process and undermines depositor confidence in China’s deposit insurance scheme.