Police in China have launched an investigation into privately held Zhongzhi, an indebted financial giant that has been declared “insolvent” and whose setbacks raise the risk of contagion.
Zhongzhi (ZEG), which is little known to the general public but has a large number of financial companies, is one of the most important players in the market.
Investment bank Nomura estimates that the company alone manages assets worth more than 1 trillion yuan ($192 billion).
Numerous companies and wealthy individuals have entrusted him with their savings.
During the boom years, many developers used escrow or asset management companies like Zhongzhi to finance their projects.
But the group, which is affected by the real estate crisis in China and a slowdown in the economy, is now unable to compensate the beneficiaries.
Zhongzhi, which declared itself “insolvent” on Wednesday, put its arrears at nearly $90 billion, according to a letter to investors reported by local media.
Police in Beijing, where the group is based, said Saturday evening they had opened an investigation into unspecified “suspected crimes.”
“Coercive measures” were taken against “several suspects,” according to a press release, which does not specify the number of suspects or what these measures consist of.
According to press information, the authorities had already used this term to describe the situation of the heavily indebted boss of the real estate giant Evergrande, who was under house arrest in September.
In particular, Zhongzhi includes the subsidiary Zhongrong International Trust (ZTR), from which worried savers tried in vain to demand accountability in August.
Its bankruptcy raises fears of unforeseeable consequences for China’s financial system, two years after Evergrande’s descent into hell, whose setbacks continue to weigh on the real estate sector and the economy.
Zhongzhi was already weakened by this crisis and has been further weakened since the death of its founder Xie Zhikun in 2021.