Workers install steel platform of a signboard for a Winter carnival fair, in Beijing, Monday, Dec. 15, 2025. (AP Photo/Andy Wong)
Beijing: A US$3bil redemption crisis in eastern China is reviving concerns about the loosely-regulated shadow-banking industry as the nation’s prolonged property slump risks spilling over into the financial sector.
Investors holding some 20 billion yuan or about US$2.8bil in wealth management products sold through Hangzhou-based Zhejiang Zhejin Asset Operation Co failed to receive payments due in late November, according to people familiar with the matter.
The products’ underlying assets were debt claims of property developers affiliated with Sunriver Holding Group Co, documents seen by Bloomberg News show.
The fallout has affected thousands of investors, many of whom are government workers and employees of state-owned firms, one of the people said, who asked not to be named discussing a private matter. The subsequent rush to withdraw their funds has further heightened the liquidity pressure on the exchange, prompting it to freeze redemptions.
The incident is the latest indication of how China’s murky shadow-banking industry has allowed the country’s extended property slump to spill over into other areas of the economy and rack up a long list of victims.
The crisis was thrust back into the spotlight last month after China Vanke Co, once the nation’s largest builder, rattled markets by requesting to delay bond repayments.
It also brings back to the surface longstanding structural vulnerabilities in the country’s vast shadow-banking network.
Unlike traditional lenders, which are subject to strict capital adequacy and risk reserve requirements, these financial intermediaries outside the regulated banking system operate with fewer restrictions, increasing the likelihood of contagion into other sectors when they encounter difficulties.
Many investors had bought products from the platform, formerly known as Zhejiang Financial Assets Exchange, reassured by its partial ownership by state-backed entities, the people said.
But after it gradually shifted in recent years to majority private ownership, some investors didn’t realise it had effectively become a dedicated financing conduit for Sunriver, a conglomerate whose businesses span property development and tourism, they said.
Local authorities disqualified the platform from offering financial assets trading services in October last year.
Zhejin Asset, Sunriver and the local financial services watchdog didn’t immediately respond to Bloomberg requests for comments.
Most of the financial products in the Zhejiang case were issued by affiliates of Sunriver, according to documents seen by Bloomberg News.
Sunriver used to rely heavily on property projects for quick income but had met with “a temporary liquidity strain” after sales faltered, an executive told local media.
The group has about 60 billion yuan in total assets and 40 billion yuan in debt, the executive added.
The redemption troubles were reported earlier by local media including Caixin and Yicai.
At least 10 of Sunriver’s affiliates, many of which are property developers, have defaulted on their commercial paper over the past year or so, according to a notice from the Shanghai Commercial Paper Exchange Corp.
Long aware of the risks connected to shadow banking, regulators have stepped up their efforts to rein in risky activity in recent years.
In 2018, regulators banned non-standardised fund pools and restricted “channel business” – a common practice where institutions help traditional banks move assets off their balance sheets.
The authorities also issued “window guidance” to trust companies and financial asset exchanges, ordering them to limit real estate-related financing and strictly verify developers’ creditworthiness.
The measures initially had some impact.
By the end of 2019, assets in the shadow-banking industry dropped to 84.8 trillion yuan from a peak of 100.4 trillion yuan in 2017, according to a research by the banking regulator. It hasn’t disclosed more current data since then.
The recent trouble in Zhejiang is a reminder that the problem never fully went away. It risks further undermining households’ confidence in the nation’s financial system, where investment returns are hard to come by.
In 2022, an alleged multibillion-dollar scam at some rural lenders in Henan province triggered violent confrontations between local police and protesters demanding their money back.
Authorities in Zhejiang province have set up a special working group to address the latest crisis and maintain financial and social stability.
Still, it will take time for the group to deliver any concrete solutions to repay investors, according to the people familiar. — Bloomberg
