July 19, 2024

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China launches probe into struggling shadow bank Zhongzhi

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Chinese authorities have opened a probe against Zhongzhi, one of the biggest conglomerates in the country’s sprawling shadow financing market, days after the group declared that it was “severely insolvent”.

Beijing police said that Zhongzhi was suspected of committing “illegal crimes”, and that “mandatory criminal measures” have been placed on a number of suspects, including one surnamed Xie. The statement did not specify the suspects’ alleged crimes or details of the measures being taken.

Zhongzhi had disclosed in a letter to investors last week seen by the Financial Times that it was facing a shortfall of about $36.4bn, renewing concerns over China’s $2.9tn opaque shadow financing sector and its exposure to the troubled property sector and wider economic slowdown.

The company wrote that it had total assets of just Rmb200bn ($28bn) against liabilities of up to Rmb460bn. It added that “internal management ran wild” following the departure of “multiple senior executives and key personnel” in the wake of the death in 2021 of founder Xie Zhikun, who it said had “played a pivotal role in decision-making”.

Zhongzhi and its affiliate investment group Zhongrong missed payments on several products earlier this year, prompting concerns of a spillover from the country’s property sector crisis, which has been rocked by a series of developer defaults, into shadow financing, which often supports real estate development.

Chinese policymakers have rolled out a range of piecemeal support measures in an effort to reverse the slowdown in the property sector, which previously accounted for more than a third of economic growth. This month, regulators instructed state banks to increase credit to cash-strapped private developers to a “reasonable” degree.

Zhongzhi did not immediately respond to a request for comment.


2023-11-26 02:27:35

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