A group of investors protested outside the office of Zhongrong International Trust Co—one of China’s largest shadow banks—after it again failed to make payments on dozens of its products.
Zhongrong is the ninth largest trust in China, with 600 billion Chinese yuan, or $82 billion, worth of assets under management. It has been deferring its payments since late July.
According to Bloomberg, Zhongrong has missed payments on dozens of products and has no immediate plan to make clients whole.
At least 30 products are now overdue, and Zhongrong also reportedly halted redemptions on some short-term instruments.
Deferred payments since July
On Wednesday (Aug 16), around two dozen protesters flocked to Zhongrong to demand payment. A video of the incident also went viral showing around 10 police and security officers deployed outside the office and attempting to pacify the agitated crowd.
In one of the clips, which was accessed by Bloomberg, a woman angrily asks about a product she owned that matured on July 28. “Why doesn’t the company pay us back?” she says. “It has already matured. Your financial statements said there is a profit.”
Another woman shouts, “Give us the money back, or we will die here.” A third says: “Why you don’t give us a clear explanation?”
The liquidity crisis troubling Zhongrong has sent alarm bells in Beijing as it comes just days after Country Garden, China’s biggest private-sector developer by sales, missed interest payments on two US-dollar-denominated bonds.
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Both events are concerning as China’s trust companies, once seen as a safe place for wealthy Chinese to park their money for hefty returns, are struggling to repay their clients.
These trust companies sell investment or trust products to corporate and wealthy clients. The clients’ funds are then pooled and invested in a wide range of products or used as loans to private companies — including real-estate developers.
According to Bloomberg Economics, as of the end of 2022, China’s trust sector’s exposure to real estate was about 2.2 trillion yuan, or $302 billion, accounting for 10 per cent of its total assets.
Recently, a lot of trust firms have started defaulting on billions of dollars of investment products and the industry has shrunk by about 20 per cent from its peak in 2017, when regulators began clamping down on the nation’s shadow-banking excesses.
“The big danger is that a negative feedback loop kicks in, with property stress causing strains in the financial system, undermining credit expansion and depressing growth, which, in turn, exacerbates the slump in the property sector,” Bloomberg Economics said in a note.
(With inputs from agencies)
