Realty Spillover in China

China’s Zhongzhi Enterprise Group, a leading wealth manager, told investors it is heavily insolvent with up to $64 billion in liabilities, threatening to reignite concerns that the country’s property debt crisis is spilling over into the broader financial sector.

The firm, which has sizable exposure to China’s real estate sector, apologised to its investors in a letter that said it had total liabilities of about 420 billion yuan ($58 billion) to 460 billion yuan ($64 billion). The Zhongzhi’s estimated total assets is about 200 billion yuan, according to the letter.

The worsening woes at Zhongzhi, a major player in China’s $3 trillion shadow banking sector – roughly the size of the French economy – is set to rekindle worries about contagion, though some analysts expected regulators to step in to stem a wider fallout.

China’s highly indebted property sector has been reeling from a liquidity crunch since 2020. Defaults by developers since late 2021 have impeded economic growth and rattled global markets.

Signs of trouble at the Zhongzhi group first came to light in July when Zhongrong International Trust Co, a leading trust company controlled by Zhongzhi, missed payments on dozens of investment products.