Zhongzhi Enterprise Group: China launches criminal investigation into ‘bankrupt’ shadow bank

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On Monday, August 21, 2023, Zhongrong International Trust Co., Beijing, China. Signature on office.

Hong Kong

The Troubles have deepened at one of China’s largest privately-owned financial institutions Chongji Now at the center of a criminal investigation.

Beijing police have launched an investigation into the wealth management division of Zhongzhi Enterprise Group, officials said over the weekend. The announcement comes days after the company told investors “Severely bankrupt.”

According to a statement released on Saturday, police suspect Zhongzhi of “illegal crimes” and have implemented “compulsory criminal proceedings” against several suspects, including those surnamed Xie. The group’s founder, Xie Zhikun, He died of a heart attack in December 2021, but his sons-in-law hold key positions in the group, according to Chinese state media.

“Investors are requested to actively cooperate with the police in the investigation and gathering of evidence,” the police said without elaborating on the crimes or proceedings.

Under China’s Criminal Procedure Code, “criminal coercive measures” can mean anything from bail pending trial or house arrest to detention or arrest.

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The office building of Zhongrong International Trust, a trust company that is part of Zhongzhi Enterprise Group, in Beijing, China on August 22, 2023.

Zhongzhi controls nearly a dozen property and wealth management companies. On Wednesday, it said in a letter to its investors that it had “huge debt” and could not pay all of its bills. Its total liabilities amount to 460 billion yuan ($65 billion), against assets of 200 billion yuan.

“Liquidity Runs Out, Asset Impairment Serious,” Zhongshi said the letter, quoted by Chinese state-owned news agencies. “Preliminary due diligence shows that the group is severely insolvent and has significant operational risks”

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Since the death of its founder in 2021 and the resignation of senior executives, Zhongzhi said it has struggled with “ineffective” internal management.

The group did not respond to a request for comment Monday.

The Beijing-based firm is considered part of China’s $3 trillion “shadow banking” industry. An emerging field A major source of finance for the country. The term generally refers to financial activity outside the formal banking system, either through banks or by non-banking financial institutions such as trust companies.

Zhongzhi was worried about finances First of all A trust owned by a trust was triggered in August – Zhongrong International Trust – after failing to pay individual and corporate investors.

According to videos posted on Chinese social media seen by CNN, angry protesters chanted slogans and demanded payment for investment products offered by the company. At least three listed companies were among the victims, with payments exceeding 110 million yuan ($15 million).

The missed money underscores what China’s protracted asset decline looks like It spreads across the financial sector.

A key reason behind the company’s financial woes is its strong ties to China’s real estate industry. Zhongrong, this $87 billion managed The fund, which caters to corporate clients and wealthy individuals, invested about a tenth of its money in real estate, according to its annual report last year.

But many of the companies in its real estate portfolio have been struggling with cash crunches since 2020 after regulators began cracking down on reckless borrowing by developers.

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