Chinese financial tycoons are drowning in debt.

Zhongzhi Enterprise Group, a leading asset management company in China, has informed investors that it is unable to repay its current debts.

Zhongzhi Enterprise Group (ZEG) is one of China's largest privately held conglomerates, operating in the financial services, mining, and electric vehicle sectors. In a letter to investors on November 22nd, Zhongzhi stated that it is facing "serious insolvency" with debts of 420-460 billion yuan (US$58-64 billion). Its current assets are only around 200 billion yuan. In the letter, Zhongzhi acknowledged the debt burden as "enormous."

"Because the group's assets are primarily long-term bond and stock investments, recovering capital is very difficult. Liquidity is therefore drying up and assets are also depreciating significantly," the announcement stated.

Concerns about the company's finances flared up in August 2023, when Zhongrong International Trust – a fund they controlled – missed a payment deadline to institutional investors.

Outside the Zhongzhi Enterprise Group office in Beijing. Photo: Reuters

ZEG also apologized to investors. They stated that since the founder's death in 2021 and the subsequent resignation of several senior executives, ZEG has struggled with "ineffective" internal governance.

Zhongzhi's business is primarily related to China's real estate sector. Therefore, this information is raising concerns that the real estate crisis will spread to China's $3 trillion shadow banking sector.

Shadow banking is defined as lending activities outside of traditional banks. This form of banking is very common in China. Asset management companies like Zhongzhi are not subject to as many regulations as commercial banks. They raise money by selling asset management products to investors, and then use that money to invest in real estate and other sectors.

Experts say that investors in these funds are typically middle-class. Therefore, defaults, or fears of default arising from delayed payments, could also drag down consumer confidence.

Ha Thu (according to Reuters, CNN)

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