Chinese Wealth Giant Crumbles: ZEG's Insolvency Shakes Shadow Banking
BREAKING
A leading Chinese wealth management company, Zhongzhi Enterprise Group (ZEG), has declared itself "severely insolvent," sending shockwaves through the country's financial sector and raising concerns about the stability of the $3 trillion shadow banking industry.
The Ripple Effect of Real Estate Slump
ZEG's announcement comes amidst China's ongoing real estate crisis, signaling potential spillover effects into the broader financial market. The Beijing-based conglomerate, with significant investments in the property sector, disclosed in a letter to investors that its total liabilities could reach 460 billion yuan (about $65 billion), starkly outweighing its assets valued at 200 billion yuan.
According to reports by lanjinger.com, a Chinese state-owned news outlet, and international agencies such as Reuters, ZEG's financial distress highlights the challenges facing China's shadow banking system. However, the contents of the letter and the full extent of ZEG's financial woes remain unverified, as the company has not responded to requests for comment.
So what happens to all the little people with mortgages greater than their home value? In the 80’s, the mortgage company I worked for foreclosed on everything. I thought it was a property grab. I was a 17-year-old kid and didn’t pay attention.
China has over 20 million undelivered units either unfinished or of tofu dreg construction that need remediation. China has a prepay real estate purchase model with down payments of at least 30%. The money for development to finish these units, or to repair them, is now gone. Banking is tightening with liquidity problems and unwilling to make loans to finish the projects. With no money to finish the projects buyers are stuck with the mortgage. Some are simply refusing to continue making the payments. They can't loose homes they never possessed - but many have lost substantial sums of money with no legal recourse. Lots of finger pointing starting to happen with local government officials being rounded up - all to take some of the heat off the central CCP government.
China has had wide spread corruption that was allowed to run rampant during the boom years. Now with the boomerang effects of corruption coupled with the economic contraction, the house of cards is collapsing just like China's construction projects. Money is flowing out of China by the billions and some of it by way of underground banks in Hong Kong that the CCP is unable to stop. The rats are basically abandoning the ship.
Been hearing from the Chinese rumor mill that Xi came to the US to ask for a $900 billion bail out. One or two of the major Chinese banks are on the verge of collapse. This goes way beyond the Evergrande and Country Garden investment defaults. These failures could ripple worldwide. Smart money has seen the handwriting on the walls and have been trying to limit exposure for several years. What is worrying is the number of pension funds tied to Chinese indexes. Many pension funds are poorly managed and may not be paying attention because they have bought into the CCP propaganda illusion. If you have a pension, you may want to check your portfolio holdings.
Thank you for this. I’m not a complete financial fool, but I did not understand the China real estate issues.
You are welcome. China happenings are one of the areas I follow closely and regularly. Real estate comprises about 30% of China's GDP - so any collapse there can bring the entire system down and it is. China is in big trouble.
China is not the sparkling image the CCP has crafted for the world and Western media to see. Their Belt and Road Initiative projects are also in big trouble. Many projects have been abandoned and some are falling apart. The hydroelectric dam in Ecuador is most worrisome. It has thousands of cracks. These poorer countries that got into bed with China's predatory debt trap lending are now left holding the bag with debt to China and very little to show for it. They did not get what they were promised.
Wasn’t China also involved in Italy’s collapse? I remember the whole “hug a Chinese” Covid stunt.