China: liquidation of Zhongzhi and sale of Country Garden, shadow banking crisis deepens

China is trying, desperately, to resist the crisis by changing the rules of the game: after those of the stock exchange, from the opening hours to the discounted fees to be paid for each transaction, it is now trying the card of the additional basket of high-tech blue chips destined, in the intentions of the architects of the financial markets, to reflect the changes in the real economy. But it is the massive flight of capital that intensified at the end of the year that is frightening, as well as that 11% drop recorded by the volumes of the Chinese stock exchanges in the year that has just ended while the US cashed in with +24%. Yesterday also saw the liquidation of Zhongzhi, the queen of real estate-related shadow banking, and the sales of the indebted Country Garden.

More than the magic of such refinements, the difficulties, such as the liquidation petition of Zhongzhi, the trust giant declared insolvent for USD 64 billion against assets of 200 billion yuan, accepted by a court in Beijing, stand out. According to the court, Zhongzhi filed for bankruptcy because it could not pay the debts it owed and its assets were insufficient to pay all debts. In July, the first signs appeared when Zhongrong International Trust Co, a leading trust company controlled by Zhongzhi, defaulted on payments for dozens of brick-related investment products.

In August, Zhongzhi told investors that it was facing a liquidity crisis and would conduct a debt restructuring. The management admitted that the assumed 'self-rescue' plan through restructuring, with a focus on debt collection and liquidation of assets, was a more palatable option than bankruptcy, which prevailed.

Bad news also came from Country Garden, once China's number one real estate developer, then overtaken six years ago by the equally staggering Evergrande: the company had to report to the authorities in Hong Kong, where it is listed, flurry sales of some 6.61 billion yuan, or EUR 866 million, and an area of 680,000 square metres. At the end of June, Country Garden's debt stood at EUR 33 billion. That accumulated by Evergrande, whose hearing - restructuring or liquidation - has been postponed to the end of the month, touches $300 billion.

Little does it matter that the new CSI A50 includes Kweichow Moutai, the world's most coveted liquor, Contemporary Amperex Technology Co's electric batteries, chipmaker Semiconductor Manufacturing International Corp and pharmaceutical giant Jiangsu Hengrui. JPMorgan has already launched new funds pegged to the index although so far the new benchmark has fallen 2.6.