China’s Zhongzhi Financial Conglomerate at Center of Criminal Investigation
Hong Kong, CNN — Troubles continue to deepen for one of China’s largest privately-owned financial conglomerates, Zhongzhi, which is now at the center of a criminal investigation. Beijing police have launched a probe into the wealth management unit of Zhongzhi Enterprise Group, marking a significant development in the ongoing financial crisis.
The announcement comes just days after the company informed investors that it is “severely insolvent,” sparking concern and leading to a criminal investigation into possible illegal activities within the organization. The statement posted by police on Saturday revealed that they suspect Zhongzhi of “illegal crimes” and have enforced “mandatory criminal measures” against a number of suspects, including one surnamed Xie. The founder of the group, Xie Zhikun, passed away in December 2021, but his nephews continue to hold key positions within the organization, as reported by Chinese state media.
The police have called on investors to actively cooperate in the investigation and evidence collection, although specific details about the crimes or measures were not disclosed.
Under China’s Criminal Procedural Law, “criminal mandatory measures” can range from bail pending trial or house arrest to detention or arrest.
Zhongzhi controls nearly a dozen asset and wealth management firms and recently informed investors in a letter that it is unable to pay all its bills and is facing a “huge debt.” The company reported total liabilities of up to 460 billion yuan ($65 billion) against assets of 200 billion yuan, indicating a significant financial imbalance.
The company expressed regret over its financial struggles, citing ineffective internal management following the death of its founder in 2021 and the subsequent resignations of senior executives.
Concerns about Zhongzhi’s finances were initially raised in August when a trust it partially owns—Zhongrong International Trust—failed to make payments to individual and corporate investors, sparking anger and demands for payment from affected parties. The missed payments have underscored how China’s prolonged property downturn is impacting the financial industry, with Zhongzhi’s strong ties to the real estate sector being a major factor in its financial woes.
About Zhongzhi
Zhongzhi Enterprise Group is considered part of China’s $3 trillion “shadow banking” industry, which serves as an important source of finance in the country, operating outside the traditional banking system. The company’s significant exposure to the real estate sector has further exacerbated its financial challenges, as several companies in its real estate portfolio have struggled with a cash crunch since 2020, prompted by regulatory crackdowns on reckless borrowing by developers.
As the investigation into Zhongzhi’s financial activities continues, the company has not yet issued a comment on the matter.
The implications of the investigation and potential legal consequences for Zhongzhi remain uncertain, raising concerns over the broader impact on China’s financial sector and global market stability.