Chinese Stocks Tumble As Top Wealth Manager Faces Payment Crisis Amid Property Market, Liquidity Troubles

Zhongzhi Enterprise Group Co., a major player in China’s private wealth management sector, missed payments on several high-yield investment products. The news raises concerns about the stability of China’s shadow banking industry.

The iShares China Large-Cap ETF FXI, which gives U.S.-based investors access to the Chinese blue-chip stock market, opened 1.8% weaker on Monday, reflecting a month-to-date decline of over 10%.

Moreover, the largest Chinese companies listed on the U.S. stock market, including Alibaba Group Holding Limited BABA, NetEase, Inc. NTES, JD.com, Inc. JD, Baidu, Inc. BIDU, and Li Auto Inc. LI, have all faced drops ranging between 1.5% and 3%.

Electric vehicle maker NIO Inc. NIO was among the worst performers in the category, down over 4%, influenced by Tesla Inc. TSLA’s price cuts in China, which led to a 3% decline in Tesla’s shares on Monday.

Regulatory Alarm Bells Ring

Chinese authorities established a task force to assess the risks associated with Zhongzhi, Bloomberg reported. The company’s troubles come at a critical juncture for investors. China’s weakening economic momentum and the state of the property market has investors anxious.

Another major Chinese developer, Country Garden, recently missed payments on dollar-denominated notes. The company also suspended trading of onshore bonds, further contributing to market unease.

Country Garden’s foreign bond, which expires in January, declined from 78 cents to 7 cents on the dollar in recent months. As a result, investors’ confidence in debt repayment has waned.

Chart: Country Garden Holdings Co. Ltd. 8% 18/24

China’s Economy Falters as Bank Credit Weakens

China’s economy is showing signs of strain. Bank lending has hit its lowest level since November 2009, with new yuan loans extending to CNY 345.9 billion in July, far below market forecasts.

Consumer inflation has fallen for the first time in over two years, while producer inflation has dropped for the tenth consecutive month. Additionally, exports saw a significant decline of 14.5% YoY in July, accompanied by a 12.4% contraction in imports.

These economic and financial challenges have generated shockwaves through the market, with the Hang Seng Index suffering a 1.6% drop overnight, falling to levels unseen in three weeks, driven down by the underperformance of banking shares.