China to Probe Troubled Shadow Bank Steeped In $64 Billion Debt

Authorities in China have announced an investigation into Zhongzhi Enterprise Group, after the debt-laden shadow bank told investors this week it is ‘heavily insolvent’.

Beijing police said it is investigating ‘suspected crimes’ by Zhongzhi, which has seen debts pile up to an eye-watering $64 billion, owing, in part, to the slowdown in China’s real-estate sector.

The firm is a major player in China’s $3 trillion shadow banking sector — roughly the size of the French economy. It has a sizeable exposure to the Chinese property industry.

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Beijing authorities are looking into “many” suspects involved with the firm, according to a social media post by the Chaoyang Public Security Bureau on Saturday.

It also encouraged investors to report their losses in order to help with the ongoing investigation.

“Investors are requested to actively cooperate with the police in investigating and collecting evidence and safeguard their rights and interests through legal channels,” the post read in part.

The post did not specify what crimes Zhongzhi or the individuals were suspected of having committed.

The crisis at Zhongzhi threatens to reignite concerns that China’s property debt crisis is spilling over into the country’s broader financial sector.

A leading wealth manager in China, Zhongzhi apologised to its investors in a letter issued on Wednesday that said it had total liabilities of about 420 billion yuan ($58 billion) to 460 billion yuan ($64 billion), compared to estimated total assets of 200 billion yuan.

The group said in the letter that its assets were concentrated in long-term debt and equity investments, making liquidation difficult.

Zhongzhi’s business interests span from mining to wealth management. Its financial businesses include trust, asset management, insurance, futures, and wealth management.

In July, a leading trust company controlled by Zhongzhi — Zhongrong International Trust — missed payments on dozens of investment products.

The underlying assets of Zhongrong trust are largely property related.

• Reuters, with additional editing by Vishakha Saxena

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