Zhonghzi, Chinese banking giant in crisis. What is going on?

Chinese banking group Zhongzhi Enterprise Group, one of the country's largest asset managers, told investors it was insolvent.
The news has reignited concerns about the effects of the nation's housing crisis, given that the giant has significant exposure to this sector.
The worsening of the situation in Zhongzhi has also highlighted the liquidity problems in the Chinese market of so-called shadow financing (obtained from financial institutions that operate outside the traditional and controlled banking system) which are worth almost 3,000 billion dollars.
The large Chinese financial company wrote in a letter that its total assets amounted to just RMB 200 billion ($28 billion) against total liabilities of approximately RMB 420 billion ($58 billion) to RMB 460 billion.
yuan (64 billion dollars).
The crisis of the Zhongzhi giant is a further piece of the complex economic crisis of the dragon, closely observed by investors and analysts for the consequences it can trigger on global markets.
What happens to Zhonghzi, a Chinese financial giant at risk of default The first alarming signs for the accounts of the Zhongzhi giant emerged in the summer, when Zhongrong International Trust Co, one of the main trust companies controlled by the financial giant, missed payments on several investment products investment.
The company, whose operations range from mining to asset management, said in the letter released yesterday that the group's assets were mainly concentrated in long-term debt and equity investments and therefore being able to liquidate them or account for their returns was quite complex.
The preliminary due diligence has therefore highlighted that there are not sufficient resources to cover the debt in the short term.
The giant said the death of its founder Xie Zhikun in 2021 and the subsequent departure of senior executives led to internal management failure.
Previous "self-rescue" attempts have failed to live up to expectations, the company's document said.
read also China in crisis and fleeing investors, $25 billion in shares dumped Zhongzhi falls into the category of shadow banks, loosely regulated companies that pool household savings to offer loans and invest in real estate, stocks, bonds and raw materials.
In recent years, even as rival trusts have reduced risks, Zhongzhi and its affiliates, particularly Zhongrong International Trust Co., have extended financing to struggling developers and bought assets from companies including China Evergrande Group.
Shadow financing in China often flows into real estate groups.
Zhongzhi's missed payments have therefore raised concerns about potential spillover effects caused by the slowdown in China's real estate sector, which is dragging down growth in the world's second-largest economy.

Author: Hermes A.I.

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