Zhongrong Trust’s missed payments have raised concerns among Chinese investors

SHANGHAI (Reuters) – Worried Chinese retail investors are bombarding listed companies with questions about their exposure to Zhongrong International Trust Co after the company’s default on payments sparked fears of contagion spreading throughout the country’s financial system.

Investors submitted more than 100 questions to dozens of listed companies in Shanghai and Shenzhen via investor relations platforms asking whether they had purchased Zhongrong products, after two listed companies revealed late Friday that they had not received payments on trust products owed by Zhongrong.

The long list of inquiries, which continues to grow, suggests that Zhongrong’s liquidity crunch could spark broader concerns, the risk of contagion in a financial system already under pressure from China’s slowing economy.

Zhongrong managed assets worth 785.7 billion yuan ($107.69 billion) at the end of 2022, of which 629.3 billion yuan was related to trust products, according to its latest annual report.

Huang Yan, general manager of Shanghai QiuYang Capital Co., private fund manager, said:

Zhongrong, which is controlled by Chinese financial conglomerate Zhongzhi Enterprise Group, has traditionally enjoyed significant exposure in real estate. Its missed payments added pressure on the financial sector due to the country’s deepening real estate crisis.

An investor on Wednesday asked Shanghai-listed New China Life Insurance (601336.SS) — which owned 14 billion yuan ($1.92 billion) of products from Zhongrong at the end of last year — if there was a risk of defaults. The company did not respond.

KBC Corp (688598.SS), after disclosing it owned 60 million yuan of unpaid mature trust products from Zhongrong, told investors Wednesday that other wealth management products the company bought were all low-risk products from banks and securities firms.

Investors also asked dozens of other listed companies including Bescient Technology Co (688671.SS), Shanghai New Vision Microelectronics Co (688593.SS), Nanhua Instruments Co (300417.SZ), Jiangsu Azure Corp (002245.SZ) whether She had investments. Zhongrong or Zhongzhi related products.

Most companies either said they did not have such products or did not respond.

Nearly 60 companies disclosed that they own Zhongrong’s trust products, said Topspirit Securities, most of which were small companies with a market capitalization of less than 10 billion yuan.

Broker analysts say defaults on some products “do not signify systemic risk in the trust industry.”

“It is more like an emotional upheaval, while there may be short-term effects on the finance sector and some of the companies involved,” they said.

($1 = 7.2937 CNY)

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