(Dan Tri) – A large asset management company in China informed investors that it cannot repay debt of up to 65 billion USD.
Zhongrong International Trust company headquarters in Beijing (Photo: Reuters).
According to Reuters, Zhongzhi Enterprise Group (ZEG), a large asset management company in China and heavily involved in the real estate sector, on November 22 informed investors that it `lost liquidity`.
In a letter sent to investors, ZEG said the company is carrying debt of up to 460 billion yuan (65 billion USD), while current assets are only 200 billion yuan.
`Because the group’s assets are concentrated in debt and equity investments and have long terms, recovery is difficult, the expected recoverable amount is low, liquidity is depleted and assets are impaired.
ZEG is one of China’s largest private corporations operating in the fields of financial services, mining and electric vehicles.
As of the end of 2022, Zhongrong International Trust manages up to $87 billion in assets for corporate clients and wealthy individuals.
Analysts estimate that the trust fund industry, or shadow banking, in China has a scale of about 2.9 trillion USD, larger than the size of the French economy.
Unlike the banking system, shadow banking financial institutions can lend money more easily, but those loans are not guaranteed like traditional bank loans.
According to experts, investors in these asset management products in China are mainly middle and upper class people.
In recent years, the Chinese government has sought to limit the rapid growth of such debt outside the banking system.
In particular, the shadow banking sector became the focus of attention when there were concerns surrounding the future of the world’s second largest economy amid the real estate crisis.
According to Nomura bank data, as of the end of March this year, about 7.4% of the total value of trust funds in China were real estate loans, equivalent to about 1.13 trillion yuan.
Nomura believes that the actual debt of real estate businesses borrowing from trust funds could be three times larger than this number, up to 3.8 trillion yuan at the end of June.
