China’s Financial Giant Zhongzhi Teeters on Brink of Collapse

A man walks on a path in front of the Beijing office of Zhongrong International Trust Co, partly owned by Zhongzhi Enterprise Group (ZEG) in Beijing on Aug. 17, 2023. Greg Baker/AFP

The fiscal crisis plaguing China’s largest private asset management corporation, Zhongzhi Enterprise Group (ZEG), has reverberated through multiple industries in China.

Often dubbed China’s “Blackstone,” ZEG managed assets exceeding approximately $516.7 billion. But when it was learned in August that it was facing a liquidity crisis, panic in the market followed. Concerns arose that ZEG’s crisis could be as dire or worse as the Evergrande or Country Garden crises, posing a substantial financial threat to China.

ZEG’s core investment management platform, Zhongrong International Trust, and its subsidiaries, namely Hengtian Wealth, Datang Wealth, Xinhu Wealth, and Gaosheng Wealth, all experienced significant defaults.

Fixed-income products offered by these four wealth management companies under ZEG defaulted consecutively, leading to the suspension of redemptions for all products since July. In July alone, bond extensions reached approximately $31.94 billion. Unpaid debts and new overdue bonds continued to pile up.

In August, several products from Zhongrong Trust defaulted, with an estimated $48.3 billion in trust products experiencing suspended redemptions. To date,15 publicly listed companies have disclosed investments in defaulted plans.

Taiwanese macroeconomist Wu Chia-lung likened the ZEG crisis to a “Chinese version of the Lehman moment” in an interview with The Epoch Times.

Independent commentator Zhuge Yangming warned, in an interview with The Epoch Times on Oct. 30, that the ZEG’s crisis is a harbinger of the impending collapse of China’s financial sector.

Since 2017, regulatory authorities—in line with Chinese leader Xi Jinping’s “Housing is for Living, Not for Speculation” policy—have intensified their control over financing in the real estate industry, imposing direct limitations on bank loans. This led to a growing reliance on financing from companies under the umbrella of ZEG, including Zhongrong Trust. With a substantial capital reservoir, ZEG emerged as a major financial supporter of numerous real estate companies across China.

This aerial photograph taken on Aug. 30, 2023, shows a residential complex built by Chinese real estate developer Vanke in Zhengzhou, in China's central Henan Province. AFP via Getty Images

At its core, ZEG’s primary business can be distilled into two main components.

One part revolves around financing and capital procurement, primarily facilitated through its subsidiary trusts, private equity, asset management, and four major wealth management companies. These acquired funds are then channeled into share purchases, equity investments, capital operations aimed at boosting stock prices, and eventual exit strategies through equity transfers, yielding substantial profits.

This approach thrives in favorable capital market conditions. However, the release of new stock market regulations by Chinese regulatory authorities, a stagnant stock market, mounting downward pressure on China’s economy, and the repercussions of pandemic-related lockdowns created obstacles for ZEG’s exit strategies, while private equity funding faced restrictions, leading to liquidity challenges.

Under the backdrop of a faltering real estate market, ZEG’s financial products eventually defaulted.

High-Net-Worth Individuals

ZEG’s default has also had a significant impact on the personal assets of many high-net-worth individuals.

Liang Liang, the wealth management manager at Hengtian Wealth, stated that among the clients with personal investments exceeding $417,000, as many as 150,000 people were affected, with the largest individual investment reaching $694 million.

On Dec. 18, 2021, Xie Zhikun, the founder of ZEG, passed away in Beijing at the age of 61 due to an unforeseen heart condition. The announcement of his funeral committee brought several prominent figures from the film and television industry into the spotlight, including Yu Dong, the founder, chairman, and CEO of Bona Film Group. This revelation thrust the ZEG entertainment network into the public eye.

Bona Film Group has been diligently pursuing its path to going public, yet success has eluded them thus far. The August 2020 Bona Film Group prospectus revealed a roster of 30 founding shareholders, with Zhejiang Zhongtai, a subsidiary of ZEG, ranking eighth and holding a 4.38 percent stake.

ZEG was founded by Mr. Xie, a native of Yichun, Heilongjiang Province, who was born in 1961. His journey began at a Yichun printing factory, where his high performance earned him the position of factory manager during a period of financial difficulties. He then assumed leadership of the entity and successfully revitalized the printing factory.

In 1995, Mr. Xie established the Heilongjiang Zhongzhi Enterprise Group Co., Ltd., which is now ZEG. Initially centered on the lumber industry and real estate development, the organization has since evolved into a multifaceted business group with interests spanning physical industries, asset management, financial services, wealth management, and more.

Mr. Xie’s wife is the renowned Chinese singer Mao Amin, and the couple were married in 2003, later raising two children together.

ZEG entered the entertainment industry at an early stage and played a pivotal role in shaping the expansion of Zhongnan Culture’s film and television business.

In April 2011, Zhongzhi Capital embarked on a substantial investment journey with Datang Splendor. Two years later, Zhongzhi Capital further increased its involvement by subscribing to an additional 23.84 million shares of Datang Splendor, securing a major shareholding. Datang Splendor specializes in TV drama production.

The year 2014 marked a significant milestone when Zhongnan Heavy Industries acquired 100 percent of Datang Splendor’s equity. This move increased ZEG’s combined shareholding in Zhongnan Heavy Industries to 20 percent, solidifying its position as the second-largest shareholder. Together, Zhongzhi Capital and Zhongnan Heavy Industries established the Zhongnan Culture Fund.

However, between 2018 and 2019, Zhongnan Culture faced significant financial losses of billions of yuan. In response, in 2019, Zhongnan Group entrusted voting rights and other prerogatives to ZEG, with Mr. Xie taking control. In May 2020, Jiangyin State-owned Assets acquired a 24.5 percent stake in Zhongnan Culture and took it over.

ZEG, along with its controlled entities such as Zhongrong International Trust and Wealth Management Companies, effectively raised substantial funds from high-net-worth individuals at competitive interest rates. Notably, ZEG has enjoyed support not only from state-owned enterprises but also holds all six major financial operation licenses, which made it a highly attractive option for fundraising activities.