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THE CHINESE REAL ESTATE CRISIS: Major Financial Firm in China Files For Ban

The Zhongzhi Enterprise Group in China has filed for bankruptcy which is a massive wealth management company with large investments in the country’s unstable real estate market.

The Wall Street Journal reported during an investors meeting in November, a subsidiary of the company announced that it had $31 billion more in liabilities than actual assets whereas in 2022, the company had $108 billion in assets. The massive decrease in assets was largely due to numerous real estate developers defaulting on loans following the Covid-19 pandemic.

“Domestic investor sentiment may turn even worse, especially for wealthy investors. And of course, other shadow bank institutions are likely to follow suit,” Xiaoxi Zhang told the Wall Street Jounrnal, an analyst at Gavekal Dragonomics.

Numerous companies similar to Zhongrong grew greatly during China’s large growth period over the past decade but all face major struggles primarily in the real estate sector.  Many analysts speculated the failure of Zhongzhi after payments were never received from the company to their creditors and now many other financial firms are at risk as they assess how much exposure they have had to Zhongzhi.

Since 2021, the combined companies responsible for 40% of all Chinese homes have defaulted on their debts as the Chinese real estate crisis escalates.  Companies like Evergrande and Country Garden have also threatened defaulting on loans with debts mounting by the day.

The Chinese economy overall has not returned to growth levels seen prior to the Covid-19 outbreak including the real estate sector, falling below retail expectations and fixed asset investment.

Many foreign investors have left the Chinese markets during 2023 seeing the poor returns and pulled out $31 billion from the stock and bond market marking the worst outflow of investment from the markets since 2001. According to the Institute of International Finance, they estimate an additional $65 billion in foreign investment will leave the Chinese markets in 2024.


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