Real Estate Crisis Triggers New Alarms Over China’s Shadow Banks

An accountant in northeast China deposited her life savings and received a letter guaranteeing her investment in a trust firm. Workers at a state-owned utility pooled money from friends and relatives believing that their investments were backed by the government. A man sank $140,000 into an account that he was told would make a 10.1 percent annual return.

They are among the hundreds of thousands of Chinese investors confronting a distressing reality: Their investments with Zhongzhi Enterprise Group, a financial giant managing $140 billion in assets, and its trust banking...