Risk to China’s financial sector laid bare as state-backed trust firm misses US$19 million in wealth-management payments

Zhongrong International Trust’s missed payments to three firms spark fears the slow economy may trigger a liquidity crisis beyond the property sector

Firm’s possible defaults ‘will sour sentiment on the market, particularly the non-banking financial companies’, an analyst says

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Commuters walk across an intersection during the evening rush hour in the central business district in Beijing on June 13, 2023. Photo: AP

Published: 2:35pm, 14 Aug 2023Updated: 11:09am, 16 Aug 2023

Fears that China’s economic downturn may trigger liquidity problems in the financial sector rose over the weekend after state-backed Zhongrong International Trust missed principal and income payments on 140 million yuan (US$19.3 million) of wealth-management products sold to three listed companies.

The Harbin-based trust firm failed to repay 60 million yuan in principal and 4.26 million yuan of investment gains on two products due last week, Shanghai-listed KBC said in an exchange statement on Saturday. Meanwhile, Nacity Property Service Group, which also trades on the Shanghai bourse, said in a filing on Saturday that it did not receive 30 million yuan of principal Zhongrong was due to pay last week. Earlier this month, Xianheng International Science and Technology also said that the trust firm did not make repayments on three products.

The episode underscores the risk that the nation’s economic slowdown may trigger a liquidity crisis in the financial industry beyond the property sector.

“Zhongrong’s [possible] defaults will sour sentiment on the market, particularly the non-banking financial companies,” said Wu Kaida, an analyst at Topsperity Securities.

Zhongrong International Trust is a Harbin-based trust firm. Photo: Handout

China’s economy shows no sign of regaining momentum after a July Politburo meeting signalled more easing measures. The latest data shows that both aggregate financing and new loans in July were half of what was expected by economists, highlighting weak demand and the deflationary trend.