and restructurings. China’s trusts, which channel funds from investors to infrastructure, property and other opportunities, are exposed to both developments. Although Xinhua’s bankruptcy has been relatively straightforward, a bigger blow-up may be on the way at Zhongrong, one of the country’s largest trusts, which missed payments to clients in mid-August. Panicked investors fear more firms will be ensnared, and that collapses will lead to further economic problems.
Zhongrong, which managed about 630bn yuan in trust products at the end of last year, shows how pain has spread from the property industry to the financial system. When Sunac, China’s fifth-largest developer, defaulted last year, local governments began freezing company funds in order to ensure projects were finished. One of the locations where funds were frozen was Wuhan, a city in central China, and the money included investments linked to Zhongrong.
Such links between trusts, local governments and developers, and the possibility of larger financial firms getting in trouble, have spooked investors. Indeed, Zhongrong’s troubles have contributed to the poor performance of the Chinese stockmarket: the300, a benchmark index, is down by more than 6% this month. Interventions by officials, which included a cut to stamp duty on August 27th, have had little impact.