Real Estate

Chinese shadow lender Zhongzhi files for bankruptcy

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Zhongzhi, the conglomerate at the centre of China’s $3tn shadow banking market, has filed for bankruptcy, saying that it was “severely insolvent”.

A Beijing court accepted a bankruptcy and liquidation application from Zhongzhi on Friday, stating that the group was unable to pay its debts.

In an open letter to investors, Zhongzhi said not only that it was “severely insolvent” but that management had “run wild” after the 2021 death of founder Xie Zhikun. It added that total assets amounted to just Rmb200bn ($28bn) against obligations of up to Rmb460bn.

Zhongzhi’s wealth management arm came under a police investigation over unidentified crimes in November, days after the group declared a shortfall of as much as $36.4bn.

Its failure adds to fears that the crisis in China’s property market and a wider economic slowdown are feeding through into the country’s vast and highly opaque savings industry.

Zhongzhi had constructed a complicated web of investments in listed companies and developers as a shadow lender over decades.

Its high-risk lending policies and exposure to the slumping property market plunged it into a liquidity crisis last year as it missed payments to retail investors in its wealth management businesses.

One Hong Kong-based fund manager with a Chinese financial group said it was “quite surprising” that Zhongzhi had gone “straight into liquidation”, noting that other Chinese companies with missed payments in recent years had typically sought to delay restructuring.

Zhongzhi was founded in 1995 by the late tycoon Xie and became one of the biggest non-bank financiers in China. Its business interests spanned financial services, wealth management, mining and electric vehicles.

The group’s downfall also highlights the challenge for Beijing in handling massive, and sometimes hidden, debt problems as state planners try to deleverage riskier parts of the Chinese financial system and foster more sustainable industries and growth.

Alicia García-Herrero, chief Asia-Pacific economist at Natixis, said the exposure of Chinese trust funds to the real estate sector had been significantly reduced following acute pressure from Beijing.

Research from Natixis showed that Chinese trust companies’ exposure to property in the second quarter of last year was 6.7 per cent, down from 15 per cent in 2019. But Natixis warned that some smaller trusts remained “very dependent” on real estate investments.

García-Herrero cautioned that the trusts’ exposure to the property sector, along with other parts of the shadow finance industry, had probably been transferred to bigger banks.

Zhongzhi did not immediately respond to a request for comment.


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