(Bloomberg) — Zhongrong International Trust has missed payments on dozens of products and has no immediate plan to get customers full, suggesting that problems at China’s beleaguered shadow bank are deeper than previously known.<
Wang denied rumors circulating online that she had stopped making payments on all of her products.
He said liquidity dried up “unexpectedly,” making it difficult to meet short-term debt obligations because most underlying assets are long-term and illiquid. The products are a bit like a “funding pool,” he said, referring to a once widespread practice in which proceeds from new products are used to pay other investors. This method was banned by regulators a few years ago.
Wang said Zhongrong is now seeking to reduce the fallout from defaults and ensure the stability of its operations, which could in turn help with repayment.
Zhongzhi is among the private wealth managers Beijing has been trying to rein in for years to reduce risk for the hundreds of thousands of retail customers who buy these products assuming they are safe. China is already grappling with a weak economy and the fallout from a real estate slump that threatens to push giants like Country Garden Holdings Co into default. The central bank on Tuesday cut interest rates by the most in three years in an effort to revive growth.
Read more: Why payments haven’t been made in China Trust Firm’s shake-up market: QuickTake
According to Bloomberg Economics, the exposure of the real estate trust sector was about 2.2 trillion yuan, or 10% of total assets through the end of 2022. Zhongrong is the ninth largest fund, with about 600 billion yuan in assets.
“The big risk is that a negative feedback loop begins, with property stresses causing stress in the financial system, undermining credit expansion and depressing growth, which in turn exacerbates a recession in the real estate sector,” Bloomberg Economics said in a note. .
(Updates with comment from the analyst in the sixth paragraph.)
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