Zhongzhi Bankruptcy Chokes China Property Sector

A Beijing court has accepted the application for bankruptcy from Zhongzhi Enterprise Group (ZEG), a shadow bank that has lent billions to real estate firms that became insolvent, as reported by Sam Gruet for BBC News.

ZEG is a major player in China's shadow banking industry, a term for a system of lenders, brokers, and other credit intermediaries that fall outside the realm of traditional regulated banking. I Photo: Yicai Global

Chinese officials launched an investigation into "suspected illegal crimes" against the firm in November following reports that ZEG had declared itself insolvent.

The struggling group reportedly informed investors in a letter in November that its liabilities, amounting to $64 billion (£50.6 billion), had outstripped its assets, now estimated at about $38 billion.

At its peak, ZEG's asset management arm reportedly handled more than a trillion yuan ($139 billion or £110 billion.) As much as 30% of Chinese bank assets are owed by property developers.

In line with the investigation, a Beijing court published a statement saying that ZEG's "assets are insufficient to pay off all debts, and it clearly lacks the ability to repay in full."

ZEG is a major player in China's shadow banking industry, a term for a system of lenders, brokers, and other credit intermediaries that fall outside the realm of traditional regulated banking.

Shadow banking, which is unregulated, is not subject to the same kinds of risk, liquidity, and capital restrictions as traditional banks. It took off in 2008 when credit was scarce and is now valued at $3 trillion.

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