(Bloomberg) – Zhongzhi Enterprise Group Co., Ltd. In 1995 as a timber company, it has grown into a financial conglomerate with more than 1 trillion yuan ($138 billion) in management. Now it risks becoming the latest Chinese financial giant to fail.
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The clandestine the company, frequently referred to as China’s Blackstone by local press, works at the core of China’s rapidly growing shadow banking sector, which authorities have endeavored to regulate since 2017. Now, the business is raising red flags in the vicinity.
Chinese markets after subsidiaries defaulted on payments on some investment products.
There’s a worry amongst investors about more than simply the prospect of a collapse’s consequences. Sources with knowledge of the situation say that Chinese authorities have already established a task force to look into potential infections, and the banking regulator is investigating potential risks in Zhongzhi.
Zhongzhi is one of the last free-wheeling private wealth managers Beijing is trying to rein in to reduce the risks for the hundreds of thousands of retail customers who have bought these high-yield products assuming they are safe. The timing couldn’t be worse for Xi Jinping’s government, with China already grappling with a weak economy and emerging from a moribund real estate market that threatens to drive giants like Country Garden Holdings Co. to default.
Zhongrong International Trust, partly owned by Zhongzhi Corporation, is among the largest in the country’s $2.9 trillion trust industry, which pools savings from wealthy families and corporate clients to invest in and make loans to real estate, stocks, bonds and commodities. 39.5 billion yuan worth of the business’s 270 outstanding items are due this year; Use Trust, a data supplier, says that the company failed to make at least two payments..
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This is “the thing that everyone knew was going to explode,” said Jason Hsu, chief investment officer of Rayliant Global Advisors. He said Zhongrong’s troubles were likely related to its sales of real estate-related investment products.
The emergence and potential demise of Zhongzhi closely resembles China’s history during the last thirty years.The once thriving economy is now mired in difficulties after a crackdown on private companies, including the country’s famous technology firms, has shocked investors. Consumer sentiment remains stagnant after years of severe Covid restrictions.
It’s not the only company facing difficulties. Utilization Trust reports that as of July 31, 106 trust products totaling 44 billion yuan were in default on their debts this year.
Real estate investments accounted for 74% of defaults by value. Additionally, there were billion-dollar defaults last year.
With almost 33% of the shares, Zhongzhi is the second-largest stakeholder of Zhongrong Trust. Together with these holdings, the organization invests in five asset management businesses, four insurance companies, and a mutual fund manager, among other regulated financial institutions.
wealth units, according to its website. It also controls listed companies and holds 4.5 billion tons of coal reserves among its industrial operations.
Founder
The company’s founder, Xie Zhikun, died of a heart attack in 2021, just as pandemic lockdowns were slowing China’s economy and causing markets to be volatile. Even though Liu Yang, his successor, has promised to maintain the company’s concentration on industrial and asset management operations, the real estate and economic downturns have affected its operations.
China Real Estate Business reported Aug. 12 that Xie made a fortune in the 1980s with a printing factory, before expanding into troubled assets including real estate. One billion yuan is under the management of Shimao Group Holdings Ltd. The study additionally highlights the continued existence of an office building that operated to be the Jia Yueting Group flagship.Many of these projects were left in the doldrums amid the stagnation of the real estate market and after Xie’s death.
Even as rival companies sought to minimize risks, Zhongzhi and its subsidiaries, especially Zhongrong, provided financing to struggling developers, taking assets from companies including Kaisa Group Holdings Ltd. and Shenzhen Wongtee International Enterprise Co., Ltd. Now China Evergrande Group has lagged behind between 2014 and 2016. Zhongrong’s real estate trust asset ratio more than doubled to 18% in 2020 from 6.6% in 2017, according to the paper.
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Those real estate investments have soured after the failure of the expected turnaround in real estate. Home sales in China fell by the most in a year last month, denting returns for developers such as Country Garden, whose stocks and bonds collapsed after it defaulted on coupon payments to bondholders this month.
Unverified letter
Zhongrong hasn’t given the public many details about its predicament, but it has acknowledged that it has seen phony posts on social media indicating that the business was shutting down. A statement on the company’s website states that it reported the texts to the police.
Zhongzhi’s wealth manager stated in an unconfirmed message that went viral that the group’s wealth arms had been behind on payments for all goods since mid-July and apologized to his clients. The letter claims that over 150,000 clients with outstanding assets totaling 230 billion yuan are involved in the catastrophe.
According to a source with knowledge of the task force, about half of the funds that Zhongrong collected have been moved to the main business or any of its subsidiaries.
According to analysts, Beijing’s protracted fight against the excesses of the confidence industry could be about to come to a head.
Regarding the marketing of mortgage-backed securities, the Window’s recommendations have been extremely depressing for anybody and everyone working in the trust or wealth industries.
,” Hsu said. “Maybe the last of this ugly cycle has come to an end.”
– With help from Qingqi She.
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