China’s record bank closures are a cleanup of its weakest lenders

China removed more than 670 lenders from the system in 2025, the largest annual total on record. This was less a wave of sudden bank failures than a deliberate consolidation of mostly small rural institutions, which are being merged into larger banks or dissolved so regulators can supervise them more closely. These lenders tend to have thinner capital cushions, weaker loan books, and closer ties to struggling local economies than China’s national banks. Fitch says the campaign should limit the risk of trouble spreading, but it also shows that the hard part of China’s financial cleanup remains concentrated in its small-bank network.