Massive Chinese wealth management firm files for bankruptcy amid real estate crisis

Top wealth manager Zhongzhi Enterprise Group declared bankruptcy on Friday after failing to pay its debts due to its heavy investment in the country’s struggling real estate market.

Zhongrong International Trust, a subsidiary of the company, told investors in November 2023 that it had at least $31 billion more in liabilities than in assets, previously having around $108 billion in assets at the end of 2022, according to The Wall Street Journal. The trust held around 11% of its assets in the property sector in 2022, with numerous developers defaulting amid a real estate crisis that began following the COVID-19 pandemic.

“Domestic investor sentiment may turn even worse, especially for wealthy investors. And of course, other shadow bank institutions are likely to follow suit,” Xiaoxi Zhang, an analyst at Gavekal Dragonomics, told the WSJ.

Trust companies like Zhongrong grew rapidly to around a collective $3 trillion during China’s swift growth but have been hit hard by the country’s struggling real estate sector that previously bolstered growth, according to the WSJ. Speculation around Zhongzhi’s failure spread in 2023 after multiple companies did not receive expected payments from the firm, prompting concerns that Zhongzhi posed a contagion risk threatening other financial institutions.

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Companies responsible for around 40% of Chinese homes have defaulted on their debt since 2021 when the crisis in the country’s real estate sector began. Other top developers, Evergrande and Country Garden, have recently threatened to default as they struggle with their huge debts.

China’s economy has failed to return to growth levels it maintained before the COVID-19 pandemic, most recently failing to meet expectations in retail sector growth and fixed asset investment.

Following China’s economic uncertainty, foreign investors fled the market in 2023, ending in October, pulling $31 billion in stocks and bonds from the Chinese financial system, the worst outflow since 2001. The Institute of International Finance is estimating that another $65 billion in foreign investment will exit the country in 2024.

Zhongzhi Enterprise Group did not immediately respond to a request for comment from the Daily Caller News Foundation.

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