Chinese authorities said they recently opened criminal investigations into Zhongzhi Enterprise Group Co’s (中植企業) money management business, days after the embattled shadow banking giant revealed a shortfall of US$36.4 billion in its balance sheet.
Police in Beijing said in a statement on WeChat that they took “criminal mandatory measures” against multiple suspects, identifying one by their last name, Xie (解). They urged investors to report cases or provide leads to the authorities, including filing complaints online. Xie Zhikun (解直錕), the group’s founder, died in 2021, but several of his relatives are executives at the company.
The statement did not elaborate on what the measures entail or what crimes they might have committed.
Photo: Reuters
The legal terminology used to describe the situation was similar to that used in the case of Evergrande Group’s (恆大集團) billionaire chairman Hui Ka Yan (許家印). Evergrande said in September that Hui was suspected of committing crimes.
The mandatory or coercive measures could take several forms, including summons, release on bail and residential surveillance, and detention and arrest, according to Chinese procedural law. The measures can be enforced by the police, courts or prosecutors.
Prior to Evergrande’s Hui, similar measures were taken against some staff of the money management business of the developer at the center of China’s property crisis, a police statement in September showed.
Privately owned Zhongzhi earlier last week revealed the depth of its financial difficulties, telling investors it is “severely insolvent” with a shortfall of US$36.4 billion.
The wealth manager said liquidity has dried up and the recoverable amount from asset disposals is expected to be low, a letter sent to investors on Wednesday showed.
Zhongzhi first triggered concern in August after one of its trust-company affiliates failed to make payments to customers on high-yield investment products. The group’s financial difficulties add to Chinese President Xi Jinping’s (習近平) challenges as officials grapple with a property crisis and a weak economy.
The firm said the death of its founder, Xie, and the subsequent departure of senior executives had led to a failure of internal management. Previous efforts at a “self-rescue” did not meet expectations, Wednesday’s letter showed.
Those affected by Zhongzhi’s troubles are likely to be wealthy individuals. Shadow banks such as Zhongzhi are loosely regulated firms that pool household savings to offer loans to invest in real estate, stocks, bonds and commodities. In recent years, even as rival trusts pared risks, Zhongzhi and its affiliates, especially Zhongrong International Trust Co (中融國際信託), extended financing to troubled developers and snapped up assets from companies, including Evergrande.
Authorities on Saturday called on Zhongzhi’s investors to “actively cooperate with the police investigations and protect own[er’s] rights and interests through legal channels” to help retrieve criminal proceeds and recover their losses.
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