Citic to examine finances of Zhongrong Trust
Zhongrong International Trust, potentially paving the way for a state-led rescue of the troubled shadow lender, according to people familiar with the matter.
Citic Trust, a unit of conglomerate Citic Group, and CCB Trust will lead the effort to stabilize operations at Zhongrong. The plan underscores growing concern among policymakers about the $2.9 trillion trust sector's impact on financial stability amid disappointing economic growth and a worsening property slump.
It’s also another sign of how Beijing is leaning on stronger state-owned companies to shore up the economy and keep risks in check.
Shares of government-run banks slumped on Wednesday after Bloomberg reported they will cut rates on existing mortgages as part of official efforts to boost consumer spending.
Zhongrong and closely linked wealth firm Zhongzhi Enterprise Group Co. roiled markets earlier this month after halting payments on scores of investment products sold to wealthy individuals and companies, even sparking rare protests in Beijing.
Prior to their troubles becoming public, the National Administration of Financial Regulation established a working group in July to examine risks at Zhongrong, people familiar with the matter said earlier.
Almost half of the funds raised by Zhongrong were funneled to its parent or affiliated units, one of the people said.
Citic Trust declined to comment. Representatives of the NAFR, Zhongrong and CCB Trust didn’t respond to requests seeking comment.
While losses have been building in the trust industry for years, Zhongzhi may pose the biggest challenge yet.
