Shadow banking giant Zhongzhi – a private management company with more than $137 billion in assets – has now become the latest symbol of financial instability in the world’s second largest economy, where investor, business and consumer confidence is plummeting.
Zhongzhi and its subsidiary trust companies are now under intense scrutiny after halting payments to thousands of clients.
Its trusts alone, despite operating in the shadows, account for about 10% of all loans in China, and as word of Zhongzhi’s problems spread, Chinese assets began to plunge, sending the yuan to a 16-year low.
The turmoil presents another challenge for Xi Jinping’s government, which already faces a weak economy, a real estate sell-off and rising geopolitical tensions.
China’s regulators have already formed a task force to prevent the contagion from spreading.
Analysts warn that the potential asset sales that could follow could further put pressure on broader markets.