China is closing and consolidating hundreds of rural banks as it tries to strengthen its financial system amid an economic slowdown in the nation of 1.4 billion people.
Beijing’s consolidation drive saw a record 670 banks closed in 2025, equal to about 25% of all lenders in the country.
The Chinese government has been forcing mergers and dissolutions among smaller lenders to create fewer, larger, and better-capitalized banks.
Officials in Beijing have said that small and rural commercial banks are “the weakest part” of the financial system in China.
China’s government has also grown concerned about a rise in non-performing loans among smaller banks. The number of bad loans rose to 2.8% over the last year, raising alarms.
Many of the smaller lenders in China are also exposed to risky property developers and local government funding that can be precarious.
The consolidation push is aimed at strengthening the overall financial system and avoiding any contagion should smaller banks fail, says China’ government.
The bank consolidations and closures are also taking place amid an economic slowdown in the world’s second-largest economy.
China’s economy grew an annualized 4.3% in this year’s second quarter, its slowest pace of growth since 2022.
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