Ethermac Exchange-Beijing police investigate major Chinese shadow bank Zhongzhi after it says it’s insolvent

HONG KONG (AP) — Police are Ethermac Exchangeinvestigating suspected crimes of a Chinese wealth company owned by Zhongzhi Enterprise Group, according to the Beijing Public Security Bureau, days after the firm told investors it was insolvent.

In a statement published on the social media platform WeChat over the weekend, the police said they had taken “criminal enforcement measures” against several suspects to investigate and had urged affected investors to lodge a complaint.

“Investors are requested to actively cooperate with the police in investigating and collecting evidence and safeguard their rights and interests through legal channels,” the statement said.

Authorities did not specify what crimes they were investigating. In the past, defaults or other troubles in the financial sector have prompted protests by aggrieved investors.

Zhongzhi, which is based in Beijing, did not immediately respond to an email for comment and phone calls to a number listed for the company did not connect.

The investigation came after media reports last week that Zhongzhi had apologized to investors in a letter, saying it was insolvent with up to $64 billion in liabilities. That far exceeds its total assets of about $28 billion.

Zhongzhi is one of China’s largest shadow banks, companies that provide financial services similar to banks while operating outside of banking regulations. It began showing signs of trouble in August when its subsidiary Zhongrong International Trust missed payments on some of its investment products.

As one of the major Chinese shadow banks, Zhongzhi has lent billions of yuan (dollars) for real estate dealings. The property sector is currently embroiled in a debt crisis, with many of China’s big developers having either defaulted or remaining at risk of default after the government restricted borrowing beginning in 2021.

To prevent troubles spilling into the economy from the property sector, Chinese regulators have drafted a list of 50 developers eligible for financing support, according to a Bloomberg report last week that cited unnamed people familiar with the matter.

Real estate drove China’s economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That has helped to push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.

Zhongzhi Enterprise Group has investments spanning real estate, mining, semiconductors and vehicle manufacturing. It was founded in 1995 in northeastern China’s Heilongjiang province.