Chinese financial giant drowning in debt

China's top asset management company Zhongzhi Enterprise Group has just informed investors that it cannot repay all its current debts.

Zhongzhi Enterprise Group (ZEG) is one of China’s largest private conglomerates, active in financial services, mining and electric vehicles. In a letter to investors on November 22, Zhongzhi said it was “seriously insolvent” with debts of 420-460 billion yuan ($58-64 billion). Its assets are currently only about 200 billion yuan. In the letter, Zhongzhi admitted that its debt is “huge”.

"Because the group's assets are mainly investments in bonds and long-term stocks, capital recovery is very difficult. Liquidity is therefore running out and assets are also seriously depreciating," the notice said.

Concerns about the firm's finances flared in August 2023, when Zhongrong International Trust - a fund it controls - missed a payment deadline to institutional investors.

Outside the office of Zhongzhi Enterprise Group in Beijing. Photo: Reuters — Outside the office of Zhongzhi Enterprise Group in Beijing. Photo: *Reuters*

ZEG also apologized to investors. They said that since the death of its founder in 2021 and the subsequent resignation of several senior executives, ZEG has struggled with "ineffective" internal governance.

Zhongzhi’s business is largely related to China’s real estate sector, raising concerns that the housing crisis could spill over into China’s $3 trillion shadow banking sector.

Shadow banking, defined as credit activities outside of banks, is widespread in China. Asset management companies like Zhongzhi are not subject to many of the same regulations as commercial banks. They raise money by selling asset management products to investors, then invest the money in real estate and other sectors.

Experts say investors in these funds tend to be middle class, so defaults, or the fear of defaults arising from missed payments, could also dampen consumer confidence.

Ha Thu (according to Reuters, CNN)

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