Zhongzhi Enterprise Group: Chinese shadow bank files for bankruptcy

Due to its inability to pay its debts, a significant Chinese dark bank declared bankruptcy.

Zhongzhi Enterprise Group ( ZEG), which has given real estate companies billions in loans, submitted an application on Friday, which was accepted by a Beijing court.

In November, Chinese officials began looking into” suspected improper atrocities” against the company.

ZEG had reportedly declared itself bankrupt, according to reports.

According to a letter sent to investors in November, the struggling group claimed that its liabilities, up to$ 64 billion ( £50.6 billion ), had outpaced its assets, which were now thought to be worth about$ 38 billion.

ZEG’s “assets are insufficient to pay off all debts, and it evidently lacks the ability to recover in full,” according to a statement posted on the social media site WeChat on Friday.

A method of lenders, brokers, and other funds intermediaries that fall outside the purview of conventional controlled bank is known as ZEG, which is a significant player in China’s darkness banking industry.

Illegal shadow banking is exempt from the same types of risk, cash, and capital limitations as conventional banks.

Although casual borrowing has always been a part of China’s economy, shadow banking actually took off in 2008, when credit was scant, following the global financial crisis.

The shadow banking sector in China is estimated to be worth$ 3tn. It frequently gives the nation’s real estate industry a financial lifeline. A serious credit crunch has hit the once-booming business, and some of the biggest companies are now on the verge of economic collapse.

ZEG’s asset management division reportedly handled more than a trillion yuan ($ 139 billion, £110 billion ) at its peak.

However, it was not protected from the larger real estate crisis, and in November, when government claimed they had” criminal coercive methods” against “many suspects,” it ran into new problems.

Who they are and their position within the company are also unknown. Xie Zhikun, the agency’s chairman, passed away from a heart attack in 2021.

Following the failure of property designer Evergrande and financial difficulties at Country Garden, the most recent developments at ZEG have sparked worries about more unrest in the second-largest sector of the world.

Currently, distressed real estate developers owe Chinese businesses up to 30 % of their property.

The real estate industry in China accounts for a third of its monetary productivity. That includes real estate, leasing and brokerage services, as well as businesses that manufacture goods for apartments and building materials.