Crisis at Chinese shadow bank reflects growing property stress

A redemption crisis in eastern China is reviving concerns about the loosely regulated shadow-banking industry as the nation’s property slump risks spilling over into the financial sector.

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Investors holding some 20 billion yuan (S$3.7 billion) in wealth management products sold through Hangzhou-based Zhejiang Zhejin Asset Operation failed to receive payments due in late November, according to people familiar with the matter. The products’ underlying assets were debt claims of property developers affiliated with Sunriver Holding Group, documents seen by Bloomberg News show.

The fallout has affected thousands of investors, many of whom are government workers and employees of state-owned firms, one of the people said.

The incident is the latest indication of how China’s murky shadow-banking industry has allowed the extended property slump to spill over into other areas of the economy and rack up a long list of victims. The crisis was thrust back into the spotlight in November after China Vanke, once the nation’s largest builder, rattled markets by requesting to delay bond repayments.