The largest Chinese asset management company Zhongzhi Enterprise Group (ZEG) has informed investors that it is no longer able to pay its bills.
The specified statement reinforced concerns that the prolonged downturn in China’s real estate industry could scale beyond this sphere and affect the shadow banking sector, which is worth $3 trillion.
ZEG in a message to investors on Wednesday, November 22, described its current condition as a serious insolvency. This was reported by the Chinese media with reference to a letter from this organization, which is actually a shadow bank.
ZEG, which is based in Beijing, has a significant influence on China’s real estate sector, which is currently, in a symbolic sense, something like the Achilles heel of the economic system of this country. The shadow bank estimated its total liabilities at 460 billion yuan ($65 billion) with an asset value equal to 200 billion yuan.
The letter from ZEG, the contents of which were reviewed by the media, states that the group’s assets are concentrated in debt obligations and equity investments and have a long maturity. In this case, recovery is difficult, liquidity is exhausted, and the expected recoverable amount is low. ZEG also claims a serious impairment of assets.
This group of companies is one of the largest private conglomerates in China, which operates in the sphere of financial services, mining, and the electric vehicle industry. Concerns about ZEG’s finances first arose in August when a trust it partially owns missed payments to corporate investors.
As of the end of 2022, Zhongrong International Trust managed funds of corporate clients and wealthy individuals for $87 billion.
The shadow banking sector, which is a mysterious and at the same time a huge part of China’s financial landscape, has attracted attention amid concerns about the prospects of the world’s second-largest economy, which is currently trying to cope with a protracted crisis. Experts say that in this country, investors in capital management products are mainly representatives of the middle class, which is why any defaults or even purely theoretical risks caused by delayed payments are factors of a significant weakening of consumer confidence.
As we have reported earlier, Real Estate Crisis to Stop Development of China’s Economy for Years.