Zhongrong Trust defaults scare Chinese investors

Worried Chinese retail investors are bombarding listed companies with questions about their exposure to Zhongrong International Trust Co, after defaults by the trust company sparked fears of contagion throughout the country’s financial system.

Investors sent more than 100 questions to dozens of listed companies in Shanghai and Shenzhen via investor relations platforms asking if they had purchased products from Zhongrong, after two listed companies disclosed on Friday that they had not received payment for the products. expired trust products of the firm.

The long list of inquiries, which continues to grow, suggests that the Zhongrong liquidity crisis could trigger broader fears and contagion risk in a financial system already under pressure from the slowdown in the Chinese economy.

Zhongrong managed assets worth 785.7 billion yuan ($107.69 billion) at the end of 2022, of which 629.3 billion yuan were tied to trust products, according to its latest annual report.

This shows that the negative impact of the Zhongrong incident has been “partially discounted by the marketsaid Huang Yan, CEO of private fund manager Shanghai QiuYang Capital Co.

Zhongrong, controlled by Chinese financial conglomerate Zhongzhi Enterprise Group, has traditionally been heavily exposed to real estate. Their defaults have added to tensions in the financial sector due to the worsening of the country’s real estate crisis.

Shanghai-listed New China Life Insurance Company, which owned 14 billion yuan ($1.92 billion) of Zhongrong products at the end of last year, was asked by an investor on Wednesday whether there was a risk of default. The company did not respond.

KBC Corp, after disclosing that it had 60 million yuan of past-due Zhongrong trust products, told investors on Wednesday that other wealth management products the company bought were all low-risk products from banks and broker-dealers.

Investors also asked dozens of other listed companies, including Bescient Technology Co, Shanghai New Vision Microelectronics Co, Nanhua Instruments Co and Jiangsu Azure Corp, whether they held investment products related to Zhongrong or Zhongzhi.

Most companies said they did not have such products or had not responded.

Fountain: Reuters