Zhongzhi Enterprise Group: China investigates major shadow bank for 'crimes'

Chinese officials have launched an investigation into one of the country's biggest shadow banks, which has lent billions to real estate firms. ZEG is a major player in China's shadow banking industry, a term for a system of lenders, brokers and other credit intermediaries who fall outside the realm of traditional regulated banking. Shadow banking, which is unregulated, is not subject to the same kinds of risk, liquidity and capital restrictions as traditional banks. China's shadow banking industry is valued at around $3tn. It often provides a financial lifeline to the country's property sector. "For several decades China been chasing this property bubble - and in order to create this bubble, or to fuel growth in China, they needed capital. So they started getting a lot of money from individual investors offering very, very high returns. And it worked for quite a while because the property prices were going up and it's a win-win for everybody," says Andrew Collier, a shadow banking expert at Orient Capital Research. Informal lending has always existed in China's economy, but shadow banking really took off in the aftermath of the global financial crisis in 2008, when credit was scarce. Given China's slowing economy and the crisis in the real estate sector, Mr Collier says the troubles at ZEG may just be the start of a bigger problem: "This is going to spread further into other forms of shadow banks and potentially into the actual real brick-and-mortar banks."