China's Shadow Banks Under Pressure as Real Estate Crisis Deepens
China's property crisis is causing alarm as one of the country's largest shadow banks, Zhongzhi Enterprise Group, and its trust banking arm, Zhongrong, have missed payments to investors, raising concerns of a potential collapse. These shadow banks, which offer lending and investment services without the same regulations as conventional banks, have played a significant role in China's construction boom by extending credit to property developers. The situation highlights the risks associated with high-yield investments and the moral hazard created by the government's history of bailing out indebted financial firms. Beijing faces a dilemma of whether to intervene and risk undermining the message that risky behavior has consequences or let the fallout impact social stability.