China’s shadow-banking industry threatens its financial system

Shares in Xinhua Trust, a Chinese shadow lender, are selling for rock-bottom prices. The outfit went bankrupt in May, becoming the first Chinese trust to fall in more than two decades. Since then chunks of the firm have been put up for sale on Taobao, an online e-commerce platform, at a 30% discount. Its company cars were recently added to the auction, which has been mandated by a court. A bargain-hunter could snap up Xinhua trademarks for just 12,000 yuan ($1,650).The lender’s demise was a warning: the same forces that brought it down are now ripping through China’s trust industry, which has assets of 21trn yuan. The country’s economic growth has been , and property developers are caught in a daunting wave of and restructurings. China’s trusts, which channel funds from investors to infrastructure, property and other opportunities, are exposed to both developments. Although Xinhua’s bankruptcy has been straightforward, a bigger blow-up may be on the way at Zhongrong, one of the country’s largest trusts, which missed client payments in mid-August. Panicked investors fear more firms will be ensnared, and that collapses will lead to further economic problems.