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China’s shadow banking crisis sparked by defaulting property developers could trigger broader threat to economy, analysts warn
- Missed payments by Zhongrong International Trust are ‘a ripple effect of the intensifying cash crunch faced by property developers like Country Garden,’ says analyst Shen Meng
- Further shadow banking defaults could hurt investor and market sentiment, putting China’s near-term financial stability to the test
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Yuke Xiein Beijing
Macroeconomic headwinds and a slew of defaults in the property sector have sparked concerns that a liquidity crisis rattling China’s shadow banking industry could trigger risks in the broader finance sector and challenge the country’s already weakening economy, according to analysts.
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State-backed Zhongrong International Trust, one of China’s largest shadow banks, missed payments on more than 30 wealth management products amid reports of liquidity problems faced by its controlling shareholder Zhongzhi Enterprise Group, a huge financial conglomerate.
“Zhongrong’s troubles can be viewed as a ripple effect of the intensifying cash crunch faced by property developers like Country Garden as the government continues to deleverage the sector,” said Shen Meng, director at Beijing-based investment firm Chanson & Co.
“Zhongrong’s business model of providing financing to troubled developers is actually quite common for Chinese trust firms.
“The collapse of Zhongrong or another large wealth management company could dampen investor confidence in China’s shadow banking system, leading to collateral damage to other trust firms, even the ones that have relatively healthy balance sheets.”
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Neither Zhongrong nor Zhongzhi responded to the Post’s requests for comment.
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