Zhongrong Default Sparks Concerns of Financial Contagion in China
Anxious Chinese retail investors are pressing listed firms with queries about their exposure to Zhongrong International Trust Co, following the trust company’s missed payments, which sparked worries of contagion throughout the country’s financial system.
After two listed firms disclosed late Friday that they had not received payment on maturing trust products from Zhongrong, investors submitted over 100 questions to dozens of Shanghai- and Shenzhen-listed companies via investor relations platforms, asking whether they had purchased Zhongrong’s products.
The huge list of questions, which continues to increase, implies that Zhongrong’s liquidity crisis may spark broader concerns and risk of contagion in a financial sector already under strain from China’s slowing economy.
According to its most recent annual report, Zhongrong managed assets totaling 785.7 billion yuan ($107.69 billion) at the end of 2022, of which 629.3 billion yuan were related to trust products.
This demonstrates that the negative impact of the Zhongrong incident has been “partly priced in by the market,” according to Huang Yan, general manager of private fund manager Shanghai QiuYang Capital Co. Zhongrong, which is controlled by Chinese financial conglomerate Zhongzhi Enterprise Group, has historically had significant real estate exposure. Its missed payments had increased to the financial sector’s stress as the country’s property crisis worsened.
One investor queried Shanghai-listed New China Life Insurance Company (601336.SS), which owns 14 billion yuan ($1.92 billion) of Zhongrong products at the end of last year, whether there was a possibility of missed payments on Wednesday. The corporation did not respond.After revealing that it had 60 million yuan in unpaid mature trust goods from Zhongrong, KBC Corp (688598.SS) assured investors on Wednesday that the firm’s other wealth management products were all low-risk products from banks and securities firms.
Investors also inquired for investment products related to Zhongrong or Zhongzhi at dozens of other publicly traded businesses, including Bescient Technology Co (688671.SS), Shanghai New Vision Microelectronics Co (688593.SS), Nanhua Instruments Co (300417.SZ), and Jiangsu Azure Corp (002245.SZ).
The majority of corporations either stated that they did not own such products or did not respond.
According to Topsperity Securities, about 60 companies have acknowledged that they possess Zhongrong’s trust products, with the majority of them being tiny enterprises with a market value of less than 10 billion yuan.
According to the broker’s analysts, product default “doesn’t mean overall risk in the trust industry.”
“It’s more like emotional disturbance, while there may be short-term impacts on the finance sector and a few companies involved,” they said.