China’s $138 billion shadow bank spirals at terrible time for Xi

By Bloomberg News

Fou NDeD in 1995 as a lumber business, Zhongzhi enterprise group co. grew to become a financial conglomerate with more than 1 trillion yuan ($138 billion) under management. Now it risks becoming the latest chinese financial giant to fail.

The under-the-radar group, often dubbed China’s Blackstone by local media, operates at the heart of China’s once high-flying shadow banking market, which regulators have sought to corral since 2017. The firm has now raised alarm bells across Chinese markets after affiliated firms missed payments on some investment products.

Investors aren’t the only ones spooked by the implications of its possible demise. Chinese authorities have already set up a task force to study any possible contagion, with the banking regulator examining risks at Zhongzhi, according to people familiar with the matter.

Zhongzhi is one of the last freewheeling private wealth managers that Beijing has been trying to rein in to minimize risks for the hundreds of thousands of retail clients who bought these high-yield products assuming they were safe. The timing couldn’t be worse for Xi Jinping’s government, as China is already struggling with a weak economy and fall out from the moribund property market that’s threatening to push giants like Country Garden Holdings Co. into default.

Zhongrong International Trust, part owned by Zhongzhi, is among the biggest firms in the country’s $2.9 trillion trust industry, which pools savings from wealthy households and corporate clients to invest in and make loans to real estate, stocks, bonds and commodities. The firm, which has missed at least two payments, has 270 products totaling 39.5 billion yuan due this year, according to data provider Use Trust.

This is “the one that everyone knew was going to blow up,” said Jason Hsu, chief investment officer at Rayliant Global Advisors. Zhongrong’s troubles are likely tied to its sales of investment products linked to real estate, he said.

Zhongzhi’s rise and potential downfall closely mirror China’s trajectory over the past three decades.

The once booming economy is now mired in difficulties after a crackdown on private enterprise, including the nation’s celebrated tech firms, shocked investors. Consumer sentiment remains in the doldrums after years of stringent Covid restrictions.

It’s not the only firm in difficulties. A total of 106 trust products worth 44 billion yuan defaulted this year through July 31, according to Use Trust. Real estate investments accounted for 74 percent of the defaults by value. Last year also saw billions of dollars in defaults.

Zhongzhi is the second-largest shareholder of Zhongrong Trust, holding about 33 percent. The conglomerate also holds stakes in five other licensed financial firms, including a mutual fund manager and two insurers, and is invested in five

By Kate Brumback | The Associated Press

AtLANtA—A grand jury in georgia that has been investigating former President Donald trump over his efforts to undo the 2020 election results in that state returned at least one indictment Monday, though it was not immediately clear against whom.

There was no immediate confirmation from Fulton County prosecutors about who was charged and for what, but the existence of indictments became apparent around 9 p.m. when the judge who for months has been presiding over the grand jury investigation was presented by clerk’s office officials with a set of papers in a courtroom packed with reporters anticipating news.

as to when an indictment might be released.

The grand jury heard from witnesses into the evening Monday in the election subversion investigation into Donald Trump, a long day of testimony punctuated by the mysterious and brief appearance on a county website of a list of criminal charges against the former president that prosecutors later disavowed.

asset management companies and four wealth units, according to its website. It also controls listed companies and owns 4.5 billion tons of coal reserves among its industrial operations.

The founder

T HE firm’s founder, Xie Zhikun, died of a heart attack in 2021, just as pandemic lockdowns slowed China’s economy and sparked volatile markets. While his replacement, Liu Yang, vowed to keep the company’s focus on industrial and asset management businesses, the economic slowdown and the property-market slump have weighed on its operations.

Xie made a fortune in the 1980s through a printing factory, before expanding into distressed assets including real estate, China Real Estate Business reported August 12. Deals in Beijing alone in recent years by the firm include the 3.3 billion yuan office tower, a 1.7 billion yuan project managed by Shimao Group Holdings Ltd., and an office building that was once the headquarters of Jia Yueting’s conglomerate, according to the report.

Many of those projects were left in trouble amid the property market slump and following Xie’s death.

Even as rival firms sought to pare risks, Zhongzhi and its affiliates, especially Zhongrong, provided financing to troubled developers, snapping up assets from companies including Kaisa Group Holdings Ltd. and Shenzhen Wongtee International Enterprise Co. Zhongrong issued more than 10 trust products for the now defaulted China Evergrande Group between 2014 and 2016. The percentage of real estate trust assets at Zhongrong more than doubled to 18 percent in 2020 from 6.6 percent in 2017, according to the newspaper. Those real estate investments have soured after the expected property turnaround failed to materialize. China’s home sales tumbled the most in a year last month, curbing revenue for developers like Country Garden, whose stock and bonds cratered after it missed coupon payments to bondholders this month.

Unverified letter

ZHOnGROnG has disclosed little to the public about its situation, though it has said it’s aware of forged letters being shared on social media claiming the company is no longer able to operate. The firm has reported the letters to authorities, according to a statement on its website.

In one unverified letter being circulated, a wealth manager at Zhongzhi apologized to his clients, saying the group’s wealth arms have delayed payments on all products since mid July. The incident involves more than 150,000 clients with outstanding investments totaling 230 billion yuan, according to the letter. nearly half of the funds raised by Zhongrong were funneled to its parent or affiliated units, one of the people familiar with the task force said.

Beijing’s long battle against the excesses of the trust sector may now be coming to a head, analysts say.

“The window guidance has been discouraging any and everyone who was involved in kind of a trust business, wealth business, in terms of selling real estate backed bonds,” Hsu said. “Maybe the last of this ugly episode has come to an end.” With assistance from Qingqi She / Bloomberg

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Inside the courthouse, cameras offered live feeds of the movements of the judge and other county officials, but no one offered clarity

Prosecutors in Fulton County presented evidence to the grand jury as they pushed toward a likely indictment, summoning multiple former state officials including the ex-lieutenant governor as witnesses.

But the process hit an unexpected snag in the middle of the day, when Reuters reported on a document listing criminal charges to be brought against Trump, including state racketeering counts, conspiracy to commit false statements and solicitation of violation of oath by a public officer.

Reuters, which later published a copy of the document, said the filing was taken down quickly. A spokesperson for Fulton County District Attorney Fani Willis said the report of charges being filed was “inaccurate,” but declined to comment further on a kerfuffle that the Trump legal team rapidly jumped on to attack the integrity of the investigation.

The office of the Fulton County courts clerk later released a statement that seemed to only raise more questions, calling the posted document “fictitious,” but failing to explain how it got on the court’s website. The clerk’s office said documents without official case numbers “are not considered official filings and should not be treated as such.” But the document that appeared online did have a case number on it.

Asked about the “fictitious” document Monday evening, the courts clerk, Che Alexander, said: “I mean, I don’t know what else to say, like, grace … I don’t know, I haven’t seen an indictment, right, so I don’t have anything.” On the question of whether the website had been hacked, she said, “I can’t speak to that.”

Trump and his allies, who have characterized the investigation as politically motivated, immediately seized on the apparent error to claim that the process was rigged. Trump’s campaign aimed to fundraise off it, See “Indictment,” A11