China’s Shadow-Banking Strain Resurfaces as Property Slump Triggers Redemption Crisis

China’s shadow-banking risks have resurfaced after investors holding about 20 billion yuan ($2.8 billion) in wealth management products failed to receive payments due in late November. The products were sold through Hangzhou-based Zhejiang Zhejin Asset Operation Co. and were backed by debt claims on property developers affiliated with Sunriver Holding Group Co., according to people familiar with the matter.

The missed payments triggered a rush for redemptions, forcing the platform to freeze withdrawals and affecting thousands of investors, many of them government workers and employees of state-owned firms. Confidence had been bolstered by the platform’s past links to state-backed entities, even as it later shifted to majority private ownership and became closely tied to Sunriver’s financing needs.

The episode comes as China’s property slump continues to pressure the financial system, following recent market jitters sparked by China Vanke Co. seeking to delay bond repayments. It also exposes longstanding vulnerabilities in the shadow-banking industry, which operates with lighter regulatory oversight than traditional lenders.

Sunriver has acknowledged liquidity strain after weak property sales, reporting about 60 billion yuan in assets and 40 billion yuan in debt, while at least 10 affiliates have defaulted on commercial paper over the past year. Authorities in Zhejiang have formed a special working group to manage the fallout, but the case underscores that risks in China’s shadow-banking system remain unresolved and continue to weigh on investor confidence.