China’s Zhongzhi Enterprise Group declares bankruptcy

Zhongzhi Enterprise Group, a prominent asset management company in China, has declared bankruptcy, raising concerns about the stability of the country’s $3 trillion shadow banking sector

Zhongzhi Enterprise Group, a leading asset management corporation headquartered in Beijing, has entered bankruptcy liquidation, citing its failure to settle debts amid a worsening downturn in the country’s property market.

A court in Beijing acknowledged Zhongzhi’s bankruptcy application, citing insufficient assets to cover its liabilities. This development, concerning a significant player in China’s $3 trillion shadow banking sector, heightens concerns about the property debt crisis spreading to the broader financial realm. 

Having substantial exposure to China’s real estate sector, Zhongzhi admitted insolvency in a November correspondence, revealing debts amounting to $64 billion. Subsequently, an inquiry commenced into potential misconduct by the company. Zhongzhi hasn’t responded to media requests. 

China’s real estate turmoil since 2020 has impacted economic growth and global markets due to defaults by developers. Entities like Zhongzhi, operating beyond traditional banking constraints, often funnel investment proceeds into real estate and other sectors. 

Zhongzhi’s difficulties surfaced in July, with Zhongrong International Trust Co, a Zhongzhi-affiliated entity, failing to meet obligations on multiple investment products. In August, Zhongzhi disclosed a liquidity crisis and proposed a debt restructuring plan, including the possibility of bankruptcy. 

Though the recent bankruptcy filing might accelerate asset liquidation, legal procedures are anticipated to progress slowly. Legal experts suggest investors may only recover approximately 30% of their investments, underscoring potential significant losses. 

Source: CNBC, Newsroom