China’s real estate business has become a “high-risk area” where financial institutions are struggling. Following the collapse of Zhongrong Trust, Haiyin Wealth, China’s third-largest and fastest-growing third-party wealth management service provider, has also experienced product defaults, with a total overdue amount exceeding 71 billion yuan, causing concerns in the market.
On the morning of September 11, the Fengxian Branch of the Shanghai Public Security Bureau issued a public notice regarding the suspected illegal fundraising crime involving Haiyin Wealth, taking criminal coercive measures against several suspects including Han and Wang.
According to reports from financial news outlets, Han and Wang, the behind-the-scenes controllers of Haiyin Wealth, are identified as Han Hongwei and his son Han Xiao. They were listed on the 2023 Hurun Rich List with a wealth of 6 billion yuan each.
On the evening of September 11, Yan Shi Holdings announced that due to the investigation of alleged illegal fundraising involving Haiyin Wealth Management, Han Xiao, the actual controller of the company, has been subjected to criminal coercive measures, and all of his shares in the company have been frozen by the judicial authorities.
Data from Enterprise Early Warning shows that as of September 11, since 2023, Haiyin Wealth’s overdue products have involved a total of 24 issuers, with a total overdue amount exceeding 71 billion yuan. These issuers are spread across five provinces in China, with a concentration in Fengxian District, Shanghai.
Notably, due to Haiyin Wealth’s payment default crisis, its U.S.-listed company, Haiyin Holdings, has seen a continuous decline in its stock price this year.
By 3:00 PM on September 11, Haiyin Holdings’ stock price was only $0.3689 per share.
Haiyin Holdings previously received a notice from the Nasdaq Stock Market on June 4, 2024, indicating that if the company fails to meet the minimum market value of publicly held shares (MVPHS) requirement for 30 consecutive trading days, it may face delisting by December 2.
Established in the core area of Lujiazui in Shanghai in 2006, Haiyin Wealth made its U.S. debut on the Nasdaq in March 2021, becoming the second domestic third-party wealth management company to list in the United States.
Han Hongwei, the actual controller of Haiyin Wealth, is a businessman from Henan. He founded Haiyin Wealth in Shanghai in 2006, building the Haiyin capital “empire” from scratch. With over 180 branches nationwide, Haiyin Wealth was one of the first professional institutions in China to obtain a wealth management license and obtained a public fund sales license in January 2014.
Experts in the financial sector suggest that Haiyin Wealth, controlled by Han Hongwei, Han Xiao, and Wang Dian, has built a significant financial empire under the Haiyin Group. Apart from Haiyin Wealth, the “Haiyin Group” also includes two listed companies, Haiyin Holdings and Yan Shi Holdings, engaging in wealth management, micro-loan companies, guarantee companies, online lending platforms, and liquor sales.
Why did Haiyin Wealth suddenly collapse after 18 years?
An industry expert suggested that the problems with Haiyin Wealth’s products can be traced back to the real estate sector crashing around 2021. Before 2021, most of Haiyin Wealth’s investment products were tied to real estate projects.
Haiyin Holdings’ prospectus revealed that by the end of June 2020, its private equity products mainly consisted of real estate and private equity funds. A significant portion of its wealth management service income came from real estate products, including fixed-income and equity investments in real estate companies such as Evergrande and Sunac.
Despite the defaults by Evergrande in September 2021 and Sunac in March 2022, Haiyin Wealth did not experience large-scale default events. Some investors with five years of experience at Haiyin Wealth mentioned that these real estate private equity products with 6 to 36-month terms were being repaid normally, and some were even repaid early.
In December 2023, Haiyin Wealth published an article on WeChat addressing its financial troubles, attributing delays to economic downturn effects and claiming to set up a specific task force to address the situation.
In May of this year, investigations revealed that companies listed as the underlying assets in Haiyin Wealth’s financial products could not be found at their registered or communication addresses, raising concerns about the quality and authenticity of the underlying assets.
It is believed that starting from this point, Haiyin Wealth began heavily relying on a “Rob Peter to Pay Paul” money pool model. However, as the money pool was continuously depleted due to interest, sales commissions, and losses in historical underlying assets, it eventually led to the crisis at Haiyin Wealth.
Prior to this, another trust company, Zhongrong Trust, which collapsed earlier, was also linked to defaults by real estate companies such as Evergrande Group and Sunac. The state-owned trust institution was involved in defaults totaling over 350 billion yuan and had a ripple effect on other trust companies, sparking concerns about the Chinese trust industry.