Zhongzhi Enterprise Group declares bankruptcy

Prior to its bankruptcy filing, a significant Chinese shadow bank claimed it was incapable of repaying its debts.

On Friday, a Beijing court approved Zhongzhi Enterprise Group (ZEG), a billion-dollar real estate lender.

The investigation into “suspected illegal crimes” perpetrated by the firm was initiated by Chinese officials in November.

It occurred subsequent to allegations that ZEG had filed for insolvency.

In November, the group allegedly informed investors via a letter that its liabilities, which could reach $64 billion (ยฃ50.6 billion), had surpassed its assets, currently valued at approximately $38 billion.

A Beijing court issued a statement on WeChat on Friday stating that ZEG’s “assets are inadequate to repay all debts, and it manifestly lacks the capacity to do so in full.”

ZEG is a significant participant in the shadow banking sector of China, which comprises a network of credit intermediaries, brokers, and lenders operating beyond the purview of conventional regulated banking.

Unregulated shadow banking is exempt from the same capital, risk, and liquidity constraints that govern conventional banks.

While informal lending has a long history in China’s economy, shadow banking experienced significant growth during the period following the 2008 global financial crisis, characterized by limited access to credit.

Shadow Banking Impact on China’s Real Estate

The shadow banking sector in China is estimated to be worth approximately $3 trillion. It frequently offers vital financial support to the real estate industry of the nation. Several of the largest corporations in the industry are nearing bankruptcy due to the loan crisis.

Reportedly, the asset management division of ZEG managed over a trillion yuan ($139 billion; ยฃ110 billion) at its height.

However, it was not immune to the wider property crisis, and in November, authorities announced that “many suspects” had been subjected to “criminal coercive measures.”

Concerning their identity and function within the firm, much remains unknown. Xie Zhikun, the founder of the organization, suffered a myocardial infarction in 2021.

Further unrest in the world’s second-largest economy has been averted by the most recent developments at ZEG. This follows the failure of the property developer Evergrande and the financial difficulties of Country Garden.

Plunging real estate developers owe Chinese banks up to 30 percent of the assets of the banks in debt.

The property industry also contributes one-third of China’s gross domestic product. This encompasses real estate properties, brokerage and rental services, construction materials, and industries that manufacture components for apartments.

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