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China has launched a probe into Zhongzhi Enterprise Group, one of the country’s biggest investment conglomerates, just days after the group admitted it was “severely insolvent”.
Zhongzhi was suspected of committing “illegal crimes” and that “mandatory criminal measures” have been placed on a number of suspects, including one surnamed Xie, the same as its late founder, without specifying the suspects’ alleged crimes or details of the measures being taken, Beijing police said.
That came after Zhongzhi said in a letter to investors last week that it’s facing a shortfall of about $36.4 billion, renewing concerns over China’s opaque shadow financing sector.
An audit of its balance sheet revealed that the company has debts ranging from about 420 billion yuan to 460 billion yuan ($59 billion – $64.6 billion), more than twice its assets of 200 billion yuan, it said.
“Initial inspections show that the group is seriously insolvent and has significant continuing operational risks. The resources available for debt repayment in the short term are much lower than the group’s overall debt scale,” said Zhongzhi, one of the country’s largest private wealth managers, in a letter to investors.
It said that “internal management ran wild” following the departure of “multiple senior executives and key personnel” in the wake of the 2021 death of founder Xie Zhikun, whom it said had “played a pivotal role in decision-making”.
Zhongzhi, which manages more than 1 trillion yuan in assets, was thrust into the spotlight in August after one of its trust-company affiliates failed to make payments to customers on high-yield investment products.