Beijing court accepts shadow bank Zhongzhi’s bankruptcy application
- Start of legal proceedings suggests the government ‘has faith in minimising the negative impact of the case, and protecting the rights and interests of the creditors to some extent’, Beijing analyst says
- Zhongshi’s bankruptcy application will do little to restore confidence among foreign investors: foreign-exchange broker KCM Trade
The company has filed for bankruptcy on the grounds that it is unable to repay debt and has insufficient assets to pay off its dues, according to a WeChat statement by Beijing’s First Intermediate People’s Court late on Friday. The court said it had accepted Zhongzhi’s application.
“Zhongzhi has been in trouble for a long time,” said Shen Meng, director at Beijing-based investment firm Chanson & Company.
Beijing will usually take measures – such as thorough checks of balance sheets – before the official legal process starts, to ensure that the risks of a bankruptcy are under control, Shen said. That would be the case with Zhongzhi, as the firm is linked to various entities and poses high risks to China’s financial system, he added.
“Thus, the situation that it has stepped into a legal process shows the possibility that the government has faith in minimising the negative impact of the case, and protecting the rights and interests of the creditors to some extent,” Shen said.
Zhongzhi’s bankruptcy application comes amid an intensifying property crisis in China, which has seen real estate prices decline and defaults by the biggest developers, such as China Evergrande Group and Country Garden Holdings.