Wanxiang Trust Stumbles: In a disconcerting development, Wanxiang Trust, a significant player in China’s shadow banking arena, has encountered payment delays on various investment products, amplifying concerns over the nation’s financial stability. This unsettling revelation comes on the heels of Zhongzhi Enterprise Group’s recent admission of insolvency after failing to meet investor payments, underscoring broader challenges within China’s trust industry amid an ongoing property downturn and economic shifts.
Wanxiang Trust, based in Hangzhou, reportedly postponed payments on several maturing products, some of which were invested in real estate, according to the state-owned 21st Century Business Herald. The trust industry, a crucial component of China’s $3 trillion shadow banking sector, operates outside the formal banking system and plays a vital role in financing activities.
State-owned Cailianshe further reported that Wanxiang had also missed interest payments on two other trust products since August, totaling 1 billion yuan ($141 million). Investors who had purchased these products, linked to the medical sector, expressed their grievances to financial regulators in Zhejiang province, questioning Wanxiang’s utilization of their funds.
Despite attempts to contact Wanxiang through its hotline and email, the company remained unresponsive. Wanxiang Trust, established in 2012 and owned by Wanxiang Group, one of China’s largest privately-owned conglomerates, managed related assets worth 89.25 billion yuan ($12.6 billion) by the end of 2022, with a significant portion invested in real estate.
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The troubles facing China’s trust industry highlight the spillover effects from the property sector into the financial domain, as noted by Fitch Ratings. In September, Moody’s Investors Services warned about potential liquidity challenges in China’s trust sector amid the ongoing property downturn.
China’s trust industry, heavily involved in lending to property developers, has faced challenges since the government’s crackdown on reckless borrowing in 2020. Wanxiang’s distressed products included ties to embattled property developer Kaisa Group, which defaulted in 2021, and investments in a local government financing vehicle in Guizhou province, which defaulted on some loans.
Two medical trust products were linked to a hospital project in Guizhou, one of China’s most indebted provinces. The region, grappling with financial difficulties exacerbated by the property downturn, sought assistance from Beijing earlier this year to avert default. This situation underscores the broader economic repercussions and financial risks stemming from China’s property market challenges.
As China’s leadership emphasizes risk management across the financial sector, incidents like Wanxiang Trust’s payment delays highlight the need for systematic approaches to address risks and maintain overall stability.