China, new alarm: the manager Zhongzhi is insolvent for 64 billion dollars

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If Beijing authorizes commercial banks to offer real estate developers burdened by debt loans not covered by guarantees, it means that the real estate crisis is now irreversible and that the contagion has spread deeply to the magmatic world of trusts which has affected the resources of its most affluent and loyal clientele.

The case

In fact, the situation is in free fall, the Zhongzhi Enterprise Group, considered the king of Chinese asset management, has declared to investors that it is insolvent with liabilities of up to 64 billion dollars. The company apologized to its investors in a letter in which it outlined total liabilities of between 420 billion yuan ($58 billion) and 460 billion yuan ($64 billion). But Zhongzhi operates in China’s $3 trillion shadow banking sector, the perfect breeding ground for wealth products sold to retail investors including property developers.

Tensions over Zhongzhi emerged in July when Zhongrong International Trust Co, a major Chinese subsidiary trust company, missed payments on dozens of investment products. The Zhongrong Trust Fund’s underlying assets are largely related to the real estate sector, which has high default risks. The group’s financial activities include trusts, wealth management, insurance and futures.

The origin

It all began as with other Chinese glories in the 1990s with a modest trade in timber and houses. The founder, Xie Zhikun, died two years ago, his wife is Mao Amin, a famous singer, his brother Xie Zhichun is the former executive director of Central Huijin.

Then Zhongzhi quickly expanded into businesses ranging from chip manufacturing, healthcare, new energy vehicles and finance, while financial businesses include trusts, wealth management, insurance, futures and wealth management. Holdings in five asset management companies, with a 33% stake in Zhongrong International Trust, a trust company, which sold trust products to individual and institutional investors promising up to 6% return, compared to the bank deposit reference rate at a year by 1.5%.