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China Evergrande New Energy Vehicle announced the detention of Liu Yongzhuo, its vice chairman and an executive director, in a notice Monday to the Hong Kong Stock Exchange. Its shares plunged nearly 11% after they resumed trading later in the day.

It followed news over the weekend that Zhongzhi Enterprise Group, a major shadow bank in China that has lent billions in yuan to property developers, filed for bankruptcy liquidation after it was unable to pay its debts.

A crackdown on excessive borrowing that began several years ago has left dozens of Chinese developers out of business or struggling for survival. The industry-wide meltdown has snagged a vital cog in China’s economic engine, reverberating through financial markets.

Share prices sank Monday in Hong Kong and Shanghai, with the benchmark Hang Seng index down 2.2%. Evergrande Group’s shares lost 1.4%.

Evergrande has been in crisis since it defaulted on its debt obligations two years ago. It is in the midst of a restructuring that includes selling off assets to avoid defaulting on $340 billion (€311 billion) in debt. 

Evergrande confirmed in late September that its chairman Hui Ka Yan had been subjected to “mandatory measures in accordance with the law due to suspicion of illegal crimes”. His status is unclear.

Evergrande New Energy Vehicle saw its shares tumble nearly 20% last week after it said a deal to sell shares to Dubai-based NWTN Motors had lapsed. The brief announcement of Liu’s detention on “suspicion of illegal crimes” made no mention of that or other details.

The company has delayed its plans for beginning manufacturing after running into difficulties in attracting enough funding.

The Beijing No. 1 Intermediate Court said late Friday that it had approved Zhongzhi Enterprise Group’s application for bankruptcy liquidation.

It said the company was facing a “severe shortage of working capital and is unable to recover most of its accounts receivable”.

Zhongzhi, one of China’s largest private asset management companies, said in November that its debts of up to 460 billion yuan (€59.2 billion) were more than twice its assets of 200 billion yuan. Soon afterwards, Beijing police said they were investigating suspected crimes of a Chinese wealth company owned by Zhongzhi.

According to the Chinese financial magazine Caixin, it manages nearly 1 trillion yuan in assets, but the company’s finances have suffered as the once thriving property market has languished.

Shadow banks play an important role in Chinese finance, operating outside traditional banking regulations. Zhongzhi expanded rapidly after it was founded by the late tycoon Xie Zhikun in 1995, and operates in insurance, leasing, trust, and other financial industries.