Epic Bank Scandal in China Adds to Social Tensions Over Finance

China’s mix of close state banking controls and freewheeling consumer-finance businesses is showing its social and economic strains. There’s the recent grassroots boycott on mortgage payments to protest big, overleveraged developers that sold homes and haven’t finished them. But before that, in May, an alleged multibillion-dollar bank scam triggered violent confrontations between protesters demanding their money back and police in Zhengzhou, the capital of Henan province. That scandal is shining a spotlight on China’s troubled rural banking system.

Investigating authorities say that Henan Xincaifu Group Investment Holding Co., the main shareholder of five rural lenders, colluded with bank employees to ...