#USChinaTensions
China leading shadow Bank faces payment problem, seeks help amid $3.7 trillion trust industry.
The China state-owned AVIC Trust Co. has requested operational support from two fellow trust firms after delaying payments on its investment products. The call for help comes at a time when the nation’s $3.7 trillion trust industry is struggling. AVIC Trust will become the first state-owned trust firm placed in custody since China’s Trust Law was enacted in 2001.
According to a Bloomberg exclusive on Monday, the Beijing-based firm announced that it had entered into a service agreement with CCB Trust Co. and SDIC Taikang Trust Co. The two state-owned institutions will now oversee AVIC Trust’s daily operations. The company said its outstanding claims and obligations will remain unchanged.
Chinese financial elites are now worried because defaults are clouding the trust industry in China, which is also dubbed the shadow banking sector due to its opaque financial practices.
A financial sector under years of stress
The AVIC Trust development follows similar events seen in 2023 involving Zhongrong International Trust Co., once among China’s biggest shadow banking players. Zhongrong defaulted on a slew of wealth management products and was subsequently placed in custody by CCB Trust and Citic Trust Co.
Now, those custodians have concluded that Zhongrong is insolvent, and a formal winding-up proposal has been submitted to regulators, according to sources familiar with the matter.
In 2022, Zhongrong had about 786 billion yuan $108 billion in assets under management. The firm, head quarters in Harbin, defaulted on roughly 250 billion yuan worth of trust products sold to over 30,000 individual investors and 2,000 institutions.
Its parent company, Zhongzhi Enterprise Group Co., collapsed in 2023, a time when analysts warned creditors that more than three-quarters of investor funds would likely never be recovered.
Henry Zhang, an individual investor who lost 16 million yuan $2.2 million in Zhongrong’s failed products.
