Investors Fear China’s ‘Lehman Moment’ Is Looming

Investors Fear China’s ‘Lehman Moment’ Is Looming
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Troubles at a big trust company are making investors worry about financial contagion from property developers’ distress.

Signs of financial stress at a large asset manager in China are making investors nervous about contagion from the country’s slumping property sector, rekindling a debate over whether a “Lehman moment” could occur in the world’s second-largest economy. 

Zhongrong International Trust, a seller of esoteric financial products that had the equivalent of $108 billion in assets under management at the end of 2022, has become the market’s latest worry. Four trust products managed by the firm recently missed interest and principal payments totaling the equivalent of $14 million to three publicly listed Chinese companies, according to stock-exchange filings. Beijing-headquartered Zhongrong has provided financing to many real-estate developers and helped to fund their building projects. 

Zhongrong is part of a larger, sprawling financial conglomerate called Zhongzhi Enterprise Group that owns several wealth-management businesses. If their repayment problems and defaults snowball, it could imperil many more investment products that were sold to numerous companies and wealthy individuals in China. 

On social media, some individual investors said they didn’t receive promised payments from Zhongrong products and some from Zhongzhi’s other units, and have complained to local authorities. Neither company has responded publicly to the allegations, and they didn’t reply to requests for comment. 

China’s trust industry, which had a total of $2.9 trillion in assets under management as of March 31, has long been a source of funding for property developers. Trust funds typically raise money from wealthy individuals and companies to invest in stocks, bonds, real-estate projects and other assets. 

“Zhongzhi is a black box. They don’t have periodic disclosures, it’s a private company, and some investors don’t know what kinds of assets they’re investing in,” said Xiaoxi Zhang, an analyst at Gavekal Research. 

The group’s difficulties, coming on the heels of the financial distress at Chinese property giant Country Garden Holdings, have fueled worries about China’s shadow-banking system and how intertwined it is with the property sector. 

“The worry is that a ‘Lehman moment’ beckons, threatening the solvency of China’s financial system,” Zhang wrote in a note earlier this week. She added that China’s “regulatory vigilance” meant that would be unlikely. 

The worries have added to widespread investor concerns about China’s floundering economy and beleaguered housing market. Prices of many Chinese stocks and corporate bonds have tumbled this month, and Hong Kong’s Hang Seng Index, which is stacked with companies from China, fell into bear-market territory on Friday after declining more than 20% from its recent peak. 

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  115. The next time I read a blog, I hope that it won’t fail me just as much as this particular one. After all, Yes, it was my choice to read through, but I genuinely thought you would have something useful to talk about. All I hear is a bunch of complaining about something you could possibly fix if you weren’t too busy searching for attention.

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  118. An impressive share! I’ve just forwarded this onto a friend who has been conducting a little research on this. And he actually ordered me breakfast because I discovered it for him… lol. So let me reword this…. Thank YOU for the meal!! But yeah, thanks for spending time to talk about this topic here on your blog.

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  136. Having read this I believed it was really enlightening. I appreciate you taking the time and energy to put this informative article together. I once again find myself spending a significant amount of time both reading and commenting. But so what, it was still worthwhile!

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  137. I truly love your website.. Great colors & theme. Did you develop this site yourself? Please reply back as I’m planning to create my own personal website and would love to find out where you got this from or what the theme is called. Many thanks.

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  146. An impressive share! I’ve just forwarded this onto a co-worker who has been conducting a little research on this. And he actually bought me breakfast simply because I stumbled upon it for him… lol. So allow me to reword this…. Thanks for the meal!! But yeah, thanks for spending time to discuss this matter here on your site.

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  162. Aw, this was an extremely nice post. Finding the time and actual effort to produce a great article… but what can I say… I procrastinate a whole lot and never manage to get anything done.

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    Reply
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