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Another bombshell on the Chinese economy: the collapse of Beijing’s shadow bank

Another bombshell on the Chinese economy: the collapse of Beijing’s shadow bank

Evergrande, Country Garden and now Zhongzhi Enterprise Group (connubial). New economic problems for China, dealing with the bankruptcy of the new national giant. This time it was the turn of one of the biggest Shadow banks The country, the same amount that over the years has provided several billion to real estate companies. The group, which is among the largest national asset management companies, announced that the obligations fall on investors 64 billion dollarsWhich raised fears that the housing debt crisis would spread to the financial sector.

Problems of Zhongzhi Enterprise Group

The company, which has significant exposure in Real estate China apologized to its investors in a letter, setting the total black and white liabilities at 420 billion yuan (58 billion dollars) and 460 billion yuan (64 billion). ZEG has an asset management arm that it would have run at its peak $139 billion. Chinese authorities said they were investigating the matter.Suspected illegal crimesagainst the company, a few days after the company itself declared bankruptcy.

“They’ve been taken.”Penal coercive measures” against “Many suspects“, although it is not yet clear who they are or what role they play in the company. Founder, Something like thisHe died of a heart attack in 2021. Tensions over Zhongzhi first came to light in July, when Zhongrong International Trust Co, a major trust subsidiary, defaulted on payments on dozens of investment products. The underlying assets of the Zhongrong Trust Fund are largely related to the real estate sector, which carries a high risk of default. Its financial activities include trusts, wealth management, insurance and futures.

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China fears infection

The worsening difficulties facing Zhongzhi, which is also one of the major players in China’s shadow banking sector, are worthy 3 trillion dollarsThe issue of infection risk was raised again. China’s debt-laden real estate sector is trying to recover from the liquidity crisis that began in 2020 following the credit crunch imposed by the central government to limit debt. Developer defaults began at the end of 2021, and Evergande was among the first giants to fall.

In China, that is Asset managers Associated with shadow banking, they typically operate outside many of the rules governing commercial banks and primarily channel proceeds from asset products sold to retail investors to property developers and other sectors.

For decades, China has been chasing a real estate bubble. To create this bubble, or to fuel growth, the country needed capital. So real estate investors started receiving a lot of money from individual investors who offered very high returns. It worked for a while, because real estate prices rose and everyone benefited“Ve said CNN Andrew Collier, shadow banking expert at Orient Capital Research. Given the slowdown in the Chinese economy and the crisis in the real estate sector, Collier explained that ZEG’s problems could be just the beginning of a bigger problem: “This will extend to other forms of shadow banking and perhaps to physical banks“.