Hangzhou, China – November 15, 2023 – Aerial photo shows a new property under construction in Hangzhou, Zhejiang Province, China, November 15, 2023.
Photo | Future Publishing | Getty Images
Zhongzhi Enterprise Group, China’s shadow banking conglomerate, filed for bankruptcy liquidation late Friday after being unable to service its debts as the country’s real estate crisis deepens.
The company filed for bankruptcy because it was “clearly bankrupt.”” It says it does not have the capacity to repay its debts and does not have sufficient assets to pay its dues. WeChat statement Published by the First Intermediate People’s Court in Beijing.
China’s shadow banks operate by pooling household and business savings to provide loans for investments in real estate, stocks, bonds and commodities. Companies such as Zhongzhi have often financed many of China’s biggest real estate developers.
Nakashi had warned of the company’s dire financial situation as far back as August, when Reuters reported that he had told investors that the company was facing a liquidity crisis.
The company then declared bankruptcy in a letter to investors in November, and shortly after Beijing police launched an investigation into the debt-ridden shadow bank.
“While most of the company’s creditors are wealthy individuals rather than financial institutions, a bankruptcy could still undermine confidence in the broader market. There is also the possibility that there will be renewed concerns about the impact of the pandemic,” analysts said. I wrote this in a Commerzbank customer note:
The CSI 300 Index fell 1.2% by early afternoon trading, weighing on real estate stocks.
Shares of Hong Kong-listed real estate companies such as Logan Group, China Vanke, Sunac and Longfor Group fell between 2% and 3.6%.
In recent years, the Chinese government has sought to curb the rapid growth in non-bank debt issued by shadow banks.
China’s largest banks are state-owned, making it difficult for non-state-owned enterprises to access traditional banks for financing, which has fueled the rise of shadow banking.
The country’s huge real estate sector has also been caught in the middle of a crackdown on shadow banking, which real estate companies used to buy land from local governments.
“Many Zhongzhi products are non-standard wealth management products that have long been discouraged or banned by Chinese regulators, so the government’s bailout will be I don’t have high expectations. Some of them are comparable to Ponzi schemes,” he told CNBC’s Squawk. box asia.
“Since the underlying investments in trust loans are local government financing instruments and real estate debt, defaults on trust loans will likely increase further…Local governments will continue to prioritize public debt at the expense of trust loans. ” Mr. Zeng warned.
China’s real estate market has been hit by a debt crisis since 2020, with real estate giants such as Evergrande and Country Garden struggling to repay their dues. Their cash flow has dried up, primarily due to a decline in home sales.
Although home sales growth and prices remain weak, the Chinese government has begun a broad deleveraging of its once bloated real estate sector, which directly and indirectly accounts for about one-third of China’s economic activity. did.
— Clemet Tan and Evelyn Cheng contributed to this story.