China, new warning: Director Zhongqi is insolvent by $64 billion

Listen to the audio version of the article

If Beijing allows commercial banks to provide overburdened property developers with unsecured loans, it means that the brick-and-mortar crisis is now beyond repair and that the contagion has spread deep into the world of melted-down trusts that have affected their resources. Wealthier and more loyal customers.

the case

In fact, the situation is in free fall, with Zhongzhi Enterprise Group, considered the king of Chinese asset management, declaring to investors that it is insolvent with liabilities amounting to $64 billion. The company apologized to its investors in a letter setting total liabilities at between 420 billion yuan ($58 billion) and 460 billion yuan ($64 billion). But Zhongzi operates in China’s $3 trillion shadow banking sector, the perfect breeding ground for asset products sold to retail investors including property developers.

Tensions over Zhongzhi emerged in July when Zhongrong International Trust Co, a major Chinese 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. The Group’s financial activities include trusts, wealth management, insurance and futures.

the origin

It all started like other Chinese glories in the 1990s with a modest trade in timber and houses. Founder Xie Zhikun died two years ago, his wife Mao Amin is a famous singer, and his brother Xie Zhichun is the former CEO of Central Huijin.

Zhongzhi then rapidly expanded to include businesses ranging from chip manufacturing, healthcare, new energy vehicles and finance, while financial businesses include trusts, wealth management, insurance, futures and asset management. Holdings in five asset management companies, with a 33% stake in Zhongrong International Trust, a trust company that sold credit products to individual and institutional investors promising a return of up to 6%, compared to the benchmark interest rate on bank deposits on an annual basis of 1.5%. .