Zhongzi Enterprise Group: China looking into 'crimes' at a big shadow bank

 Zhongzi Enterprise Group: China looking into 'crimes' at a big shadow bank

One of the biggest shadow banks in China, which gave billions of dollars in loans to real estate companies, is the subject of an inquiry by the authorities there.

At its height, Zhongzi Enterprise Group's (ZEG) asset management division is said to have managed over a trillion yuan ($139 billion; £110 billion).

Over the weekend, authorities released a statement stating that they were looking into "suspected illegal crimes" against the corporation.

This occurs a few days after it was reported that ZEG had filed for bankruptcy.

According to reports, the financially troubled corporation informed investors in a letter last week that its liabilities, which might reach $64 billion, surpass its assets, which are now valued at around $38 billion.

The identity and function of the "several suspects" remain unknown, despite the authorities claiming to have taken "criminal punitive steps" against them. 2021 saw the death of company founder Xie Zhikun after a heart attack.

ZEG has a significant position in the shadow banking sector in China, which refers to a network of lenders, brokers, and other credit intermediaries operating outside of the purview of conventionally regulated banks. Unregulated shadow banking is exempt from the same capital, liquidity, and risk limitations that apply to ordinary banks.

The shadow banking sector in China is estimated to be worth $3 trillion. It often offers a nation's real estate industry a financial lifeline. A severe credit constraint has slammed the once-booming sector, putting some of the top enterprises on the verge of going bankrupt.

China has been pursuing this asset bubble for many years; but, in order to start this bubble or to support Chinese development, they need funds. They so need cash with very large potential returns." An enormous amount of money began to flow in from private investors. Because asset values were growing and it was advantageous to all parties, it functioned for a considerable amount of time, according to Orient Capital Research's shadow banking analyst Andrew Collier.

Although China's economy has always included informal lending, shadow banking truly took off in the wake of the 2008 global financial crisis, when credit became very tight.

According to Mr. Collier, ZEG's issues might be the beginning of a larger issue given China's weakening economy and the real estate sector's crisis: "It could spill over into other forms of shadow banks and potentially into real brick and mortar banks.""going." brick and mortar bank.

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Currently, thirty percent of Chinese banks' assets are owed by troubled real estate developers.

"Recovery from this is going to be a lengthy process," Mr. Collier states.

With the recent financial problems at Country Garden and the demise of property giant Evergrande, ZEG's new plans have sparked fears of further unrest in the second-biggest economy in the world.

A third of China's economic production comes from the real estate industry. This covers sectors that produce building supplies, apartment furnishings, rental and brokerage services, and housing.

According to the most recent data, China's GDP expanded by 4.9% over the July–September period. Compared to the previous quarter, when the GDP expanded by 6.3%, that is slower.