Chinese financial conglomerate Zhongzhi has filed for bankruptcy, marking one of the biggest collapses of a private company in China in recent years. The move comes amid a severe downturn in China’s property market.
Background
Founded in 1998 by tycoon Xueming Non, Zhongzhi grew rapidly from a small asset management firm into a financial behemoth with over $300 billion in assets under management. The company operated in various sectors including insurance, banking, securities, trusts, leasing and property development.
Zhongzhi relied heavily on borrowing to fund its aggressive expansion. Its total liabilities amounted to nearly $240 billion, with over 40% tied to high-risk wealth management products. As property cool-down pressures mounted over the past year, Zhongzhi struggled to service its mountain of debt.
Bankruptcy Filing
On January 5th 2024, Zhongzhi filed for bankruptcy at the Intermediate People’s Court of Dalian. The court said it has accepted the company’s bankruptcy and reorganization application.
This marks one of the biggest downfalls of a private company in China’s modern history. Over 300 banks and other financial institutions face unpaid claims tied to Zhongzhi. Tens of thousands of investors also stand to lose money.
| Creditor Type | Estimated Claims (USD billions) |
|---|---|
| Banks | $78 |
| Trust Companies | $62 |
| Insurers | $32 |
| Individual Investors | $30 |
| Other Financial Institutions | $38 |
Zhongzhi’s total liabilities are estimated to top $240 billion, which would rank among the biggest corporate failures ever in China. This is comparable to the downfall of HNA Group, which collapsed in 2021 with over $76 billion in debt.
Causes Behind Zhongzhi’s Collapse
The primary driver behind Zhongzhi’s bankruptcy is China’s property market turmoil. Zhongzhi had hugely exposed itself to real estate through lending, investments and development projects.
As Beijing cracked down on speculation and excessive borrowing in the property sector from 2020 onward, sales and prices went into freefall, severely squeezing developers’ finances. Dozens of builders have gone bankrupt including giants like Evergrande and Sunac.
This has had a huge knock-on impact on Zhongzhi. Its property-linked investments soured, while many developer borrowers struggled to repay debts. With a giant hole blown in its balance sheet, Zhongzhi ultimately failed to service its own towering debts.
Outlook and Impact
Zhongzhi’s failure signals continued fallout from China’s property crisis. Its huge unpaid debts will put further strain on the already slowing economy. More defaults may follow as the ripples spread through the fragile financial system.
However, Beijing could intervene to contain the damage. Chinese regulators may push banks to roll over or forgive Zhongzhi-linked bad loans to avoid sparking wider panic. A state-led resolution rather bankruptcy liquidation is possible. Authorities also have tools to shield depositors and contain investor fallout.
The Zhongzhi debacle deals a further blow to billionaire founder Xueming Non. He already lost his billionaire status as Zhongzhi shares plunged 98% over the past year.
This high-profile bankruptcy case will test the ability of courts to resolve complex corporate failures in a market-oriented way. Past resolutions have often favored state-owners over private investors. Effective and fair handling could help progress China’s landmark 2018 bankruptcy laws.
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