Zhongzi, the conglomerate at the center of China’s $3 trillion shadow banking market, has filed for bankruptcy, saying it is “seriously insolvent.”
A Beijing court on Friday accepted Zhongzhi’s bankruptcy and liquidation application, saying the group was unable to pay its debts.
In an open letter to investors, Zhongzhi said not only that it was “seriously bankrupt” but that management had “ran wild” following the death of founder Xie Ziqun in 2021. It said total assets were only Rmb200bn ($28bn) against liabilities of up to Rmb460bn.
Zhongzi’s wealth management arm came under police investigation in November over undisclosed crimes, days after the group announced a $36.4 billion shortfall.
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Its failure raises fears that China’s property market crisis and broader economic slowdown are affecting the country’s vast and highly opaque savings industry.
Zhongzi had built up a complex web of investments in listed companies and developers over decades as a shadow lender.
Its high-risk lending policies and exposure to the declining property market drove it into a liquidity crisis last year as it missed payments to retail investors in its wealth management businesses.
A Hong Kong-based fund manager of a Chinese financial group said it was “quite surprising” that Zhongzi had gone “straight into liquidation”, noting that other Chinese companies with missed payments in recent years typically delayed restructuring. Had demanded to do.
Zhongzi did not immediately respond to a request for comment.
Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, said Chinese trust funds’ exposure to the real estate sector has significantly reduced following intense pressure from Beijing.
Natixis research showed Chinese trust companies’ exposure to assets stood at 6.7 percent in the second quarter of last year, down from 15 percent in 2019. But Natixis warned that some smaller trusts remain “too dependent” on real estate investments.
Garcia-Herrero cautioned that the trusts’ risk in the property sector, along with other parts of the shadow finance industry, was likely transferred to the big banks.
