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Chinese authorities have opened a probe into Zhongzhi, one of the biggest conglomerates in the country’s sprawling shadow financing market, days after the group declared that it was “severely insolvent”.

Beijing police said that Zhongzhi was suspected of committing “illegal crimes”, and that “mandatory criminal measures” have been placed on a number of suspects, including one surnamed Xie, the same as its late founder. The statement did not specify the suspects’ alleged crimes or details of the measures being taken.

Zhongzhi had disclosed in a letter to investors last week seen by the Financial Times that it was facing a shortfall of about $36.4bn, renewing concerns over China’s $2.9tn opaque shadow financing sector and its exposure to the troubled property sector and wider economic slowdown.

The company wrote that it had total assets of just Rmb200bn ($28bn) against liabilities of up to Rmb460bn. It added that “internal management ran wild” following the departure of “multiple senior executives and key personnel” in the wake of the death in 2021 of founder Xie Zhikun, who it said had “played a pivotal role in decision-making”.

Zhongzhi and its affiliate investment group Zhongrong missed payments on several products earlier this year, prompting concerns of a spillover from the country’s property sector crisis, which has been rocked by a series of developer defaults, into shadow financing, which often supports real estate development.

Chinese policymakers have rolled out a range of piecemeal support measures in an effort to reverse the slowdown in the property sector, which previously accounted for more than a third of economic growth. This month, regulators instructed state banks to increase credit to cash-strapped private developers to a “reasonable” degree.

Zhongzhi did not immediately respond to a request for comment.

Beijing police said in a statement late on Saturday on social media platform WeChat that authorities were attempting to recover assets and encouraged Zhongzhi investors to report relevant cases and leads to assist in the investigation.

In September, Chinese authorities used the same language in regard to Evergrande chair Hui Ka Yan, saying he had been placed under “mandatory measures” on suspicion of involvement in “illegal crimes” as the world’s most indebted developer was struggling to restructure its offshore debts.

The designation could refer to law enforcement actions ranging from summons to residential surveillance or arrest and detention.

Zhongzhi was founded in 1995 by rags-to-riches magnate Xie, and expanded to become one of the country’s biggest non-bank financiers, with business interests spanning financial services and wealth management, mining and new energy vehicles.

Xie was replaced following his death by Liu Yang, his nephew and chair of Zhongrong.

In August, police were called to Zhongzhi’s Beijing headquarters to resolve issues with retail investors as outcry grew over failed payments from three of the group’s four wealth management businesses in June. The fourth wealth management company later also stopped making payments, investors said.

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