Multiple investors have reported that companies affiliated with Chinese giant Zhongzhi have failed to make payments, raising concerns about the stability of China's wealth management sector and its connections to the country's faltering real estate market.
Founded in 1995, Zhongzhi is a private firm headquartered in Beijing that has expanded into a diverse conglomerate with holdings ranging from financial institutions to mining companies. The expected value of investments is at least $140 billion.
It also has what it calls a "strategic stake" in Zhongrong International Trust, which, according to reports, failed to refund the revenues of two products last week.
Several companies in the semiconductor supply chain, including KBC Corporation and Nacity Property Service Group, reported that they were owed $8.2 million and $4.1 million, respectively.
Significant Uncertainty
There has been significant suspicion in China about the company's health and its susceptibility to a property cash constraint, which has derailed the real estate industry and slowed economic development, prompting the disclosures.
According to Financial Times, more than a fourth of China's economic activity is driven by the property industry, and this sector has seen hundreds of developer defaults. Yet trust organizations like Zhongrong have traditionally been a significant source of funding for the property sector.
It is hard to know the whole extent of the group's exposure to real estate, but payment delays may signal a wider economic and property crisis.
Last May, Zhongrong sued the defaulting property developer over an investment of $261 million, which was shown in an annual report of company bonds released by Evergrande, the most indebted property developer in the world.
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Rising Anxiety
Concerns have grown because of Zhongzhi's large size, its many companies, and the fact that it does not disclose information.
People at the scene said that in early August, police were summoned to the Beijing offices of Zhongzhi after numerous retail investors attempted to resolve management concerns, Financial Times reported. Neither the investors nor the police or security guards were forthcoming with any more information about their presence.
An unnamed source claims that his family has not been paid since early July by Datang Wealth, another company run by Zhongzhi.
Apologies for late payments have been extensively shared on the Chinese internet in the form of letters purporting to be from representatives of investment enterprises related to Zhongzhi.
According to data from Tianyancha, a corporate information provider, Zhongrong International Trust, the majority of which is controlled by Zhongzhi and an allied firm, has issued a statement on its website claiming that "criminals have forged its corporate seal, official letters, and other documents."
It went on to say that bad actors were attempting to get social media users to visit malicious sites or join malicious groups.
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