How China’s $3 Trillion ‘Shadow Banks’ Fuel Global Timber Supply Chains

The financial collapse of Zhongzhi Enterprise Group highlights the role that China's banking system has played in driving global timber supply chains

Sat 25 Nov 23


One of China’s largest wealth management companies has told investors it can’t pay its bills, reigniting fears that the country’s real estate slump, which has played havoc with global log export markets, may spill over into the $3 trillion “shadow banking” sector.

As reported by Reuters overnight, Zhongzhi Enterprise Group (ZEG) confirmed that it was “severely insolvent”, with ZEG apologising for “ineffective internal management” after missing several repayments to creditors.

Starting as a timber conglomerate, Zhongzhi expanded into various businesses, including healthcare, new energy vehicles and finance. Its financial businesses include trust, asset management, insurance, futures, and wealth management.

The group is what Reuters describe as “a shadow banking empire,” managing more than 1 trillion yuan (US $136.85 billion) in assets with tentacles in a range of businesses, including financial services, mining, electric vehicles and timber and forestry (albeit a much smaller scale).

The Beijing-based company has significant exposure to China’s ailing property sector, with the scale of its debt “huge.” It has pegged its total liabilities at up to 460 billion yuan ($65 billion) against assets of 200 billion yuan.

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As reported by Wood Central earlier this month, China, through the “Manufacturing Black Box”, has been responsible for manufacturing and selling deforested forest products into global markets. China’s “shadow banking sector” is instrumental in driving trade.

“Since the group’s assets are concentrated in debt and equity investments and have a long duration, collection is difficult, the expected recoverable amount is low, liquidity is exhausted, and asset impairment is serious,” ZEG added in a letter sent to shareholders.

Analysts have estimated that the trust industry, or “shadow banking” sector, is worth $2.9 trillion, making it bigger than the French economy.

Shadow banks typically provide financing through off-balance-sheet activities or non-bank financial institutions like trust firms.

A mysterious and enormous part of China’s financial landscape, the “shadow banking” sector, has come under the spotlight as concerns swirl about the future of the world’s second-biggest economy, which is grappling with a protracted real estate crisis.

Investors in these wealth management products in China tend to be middle and upper-middle-class people overwhelmingly, experts have said, and any defaults or even concerns caused by delayed payments could dampen consumer confidence.

It comes as Wood Central has reported in recent weeks that a drop in Chinese demand for sawn wood has led to a slowdown in exports from several global markets – including RussiaPNGCentral Africa and most recently, Afghanistan.

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More than 30% of the world’s forests are connected to the Belt and Road Initiative trade routes – here US research firm Brookings has demonstrated the BRI’s role in driving global deforestation (dated 2019).

A key part of China’s Belt and Road Initiative, Wood Central understands the country’s “shadow banking sector” and provides loans to Chinese businesses (rather than government development loans) to invest in forest-based enterprises across Central Africa, Asia Pacific, and Eurasia.

The push to “investment loans” (rather than more high-profile government development loans), according to the Chinese government, is allegedly part of a pivot towards “smaller and greener projects”, which reduces the state’s exposure to default on large loans.


  • Jason Ross

    Jason Ross, publisher, is a 15-year professional in building and construction, connecting with more than 400 specifiers. A Gottstein Fellowship recipient, he is passionate about growing the market for wood-based information. Jason is Wood Central's in-house emcee and is available for corporate host and MC services.


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