Two executives from Zhongzhi Enterprise Group – one of China’s biggest and most troubled shadow banks – are missing, and may have been taken into custody.
The news comes days after authorities in Beijing started a criminal investigation into “suspected crimes” at the financial conglomerate, which told investors last week that it was “severely insolvent”, with liabilities of up to $64 billion – and assets worth less than half that amount.
Ma Changshui, 59, the chairman of Xinjiang Tianshan Animal Husbandry Bio-Engineering, had been unreachable, the company said on Thursday. He was a former banker with the Industrial and Commercial Bank of China and vice-president of Zhongzhi.
Meanwhile, Dalian My Gym Education Technology, a listed education firm, said it was unable to contact its chairwoman Ma Hongying, 38, who had also served as Zhongzhi’s chief financial officer since 2015. Ma Hongying was on the board of many Zhongzhi companies and previously worked as an accountant at Deloitte.
Both of these companies are controlled by Zhongzhi investment units. They and other firms such as Shenzhen Success Electronics were “all Shenzhen-listed companies once controlled through majority stakes by Xie (Jie) Zhikun, the late founder of Zhongzhi Enterprise Group”, according to Nikkei Asia, which said Xie died of a heart attack in December 2021.
The disappearance of the two executives is not a surprise given that the Beijing Public Security Bureau announced on Saturday that “mandatory measures” had been taken against people linked to Zhongzhi, which could mean putting people under surveillance or arresting them.
Family members, executives ‘cashed in investments’
There have also been reports that a nephew of the founder has been arrested, plus claims in Chinese media that Xie Zhikun’s family members and senior executives “cashed in” wealth investments before Zhongzhi’s financial problems were disclosed to the public several months ago.
Xie Zhikun was said to have had a wealth of 25 billion yuan ($3-4 billion) at the peak of his success.
But now financial regulators are reported to be setting up a task force to investigate causes of the group’s collapse.
Zhongzhi was part of China’s ‘shadow-banking’ sector, which is worth nearly $3 trillion, and refers to financing done outside the banking system via off-balance-sheet activities, or non-bank entities like trusts.
The group controlled nearly a dozen asset and wealth management firms, according to CNN, and had large exposure to China’s property sector, which has been in a protracted slump for the past three years.
The crisis at Zhongzhi threatens to reignite concerns that China’s property debt crisis is spilling over into the country’s broader financial sector.
In its letter last week, the group said that its assets were concentrated in long-term debt and equity investments, making liquidation difficult.
Zhongzhi’s business interests span from mining to wealth management. Its financial businesses include trust, asset management, insurance, futures, and wealth management.
In July, a leading trust company controlled by Zhongzhi — Zhongrong International Trust— missed payments on dozens of investment products. The underlying assets of Zhongrong trust are largely property related.
- Jim Pollard with Reuters