• Zhongzhi Enterprise Group (“ZEG”), a Chinese trust company and “shadow bank”, filed for insolvency on 6 January 2024. SVA first highlighted the plight of ZEG in a client mailing in August 2023, well before the international media caught on to the significance of the trust sector to the mainland’s slow-motion financial crisis.
• As we highlighted then, the frailty of ZEG clearly demonstrated that the property slowdown presented a risk of contagion across the wider financial sector. The ZEG insolvency now shows how the PRC authorities are striving to minimise the knock-on effects, albeit with limited success so far.
• SVA noted then that significant problems were likely to emerge – an assertion that stands. The insurance industry could be the “next shoe to drop”, because many insurers operate virtually integrated business into broader property or trust conglomerates, and are thus exposed to the broadening malaise.
• Similar issues relate to efforts to reorganise local government debt. Trust companies have in recent years played an important, if opaque, role in shifting such debts “off-book”. Now, the government is seeking to rein in such profligacy, and investigations into complicit local officials are well under way.
• More broadly, the ZEG collapse is feeding into anti-corruption measures in the property and financial spheres. Chinese Communist Party (“CCP”) General Secretary Xi Jinping outlined an intent to target the financial sector in a speech on 8 January 2024. Other trust and insurance companies may find themselves exposed to such actions.
• SVA continues to assess the situation. As one of the few international firms still operating and providing timely and accurate business information, we stand ready to support critical business decisions for international clients.

SVA

SVA (www.stevevickersassociates.com) is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA has three core lines of business, which are: Business Intelligence and Political Risk; Corporate Investigations; and Special Risk and Response.

SVA also has a dedicated crisis management team which, for our retained clients, stands ready to assist companies during crisis situations.

SVA is based in Hong Kong, Singapore, and London and operates globally.