Shadow lending threatens China’s financial system

As the first Chinese trust to fall in more than 20 years, Chinese lender Xinhua Trust is selling shares at outrageously cheap prices after declaring bankruptcy in May. Since then, the corporation has listed some of its assets on Taobao for sale at a 30% discount, and only recently added company vehicles to the auction.

Xinhua trademarks might be purchased for about 12,000 yuan ($1,650). The collapse of the shadow lender acts as a precursor to the forces that will eventually undermine China’s 21 trillion yuan trust sector.

An unprecedented surge of defaults and restructurings is having an impact on the real estate industry, and the nation’s economic growth has lagged behind projections. Both changes have an impact on China’s trusts, which allocate investor funds to possibilities in infrastructure, real estate, and other sectors.

In contrast to Zhongrong, one of the biggest trusts in the country, Xinhua’s bankruptcy has been rather straightforward. Investors are concerned that more businesses will suffer failures and that new economic problems will erupt.