Zhongzhi is a shadow banking-linked wealth manager with major exposure to the property sector. Its not a bank so manages to operate outside many of the prudential and regulatory rules governing commercial banks. Shadow banking firms typically sell ‘wealth products’ to retail and channel the proceeds to real estate developers and other sectors.
- the filing for bankruptcy has come after the firm failed to repay debt, being mired deep in the property market downturn
- its assets are insufficient to pay all its debts
- back in November it apologised to investors and admitted it was insolvent with liabilities circa USD64bn
- the bankruptcy filing will ease the firm’s asset liquidation, investors will be lucky to recover more than 30% of their money, and it’ll take a long time
This is not just about Zhongzhi, it points to contagion from the property debt crisis more broadly into the financial sector.
This will not be a positive for the China and China proxy trade (looking at you, AUD). Having said that, this is not a surprising development and much negativity on China has been discounted in already.