SHANGHAI - A Zhejiang company accused of illegally raising billions of yuan may not have enough assets to repay its debts amid a crackdown by Chinese authorities on private lending.

Liren Group, a company that started by opening a private school and later came under suspicion from authorities during a government campaign against illegal fundraising, may have to declare itself insolvent, the auditing firm said on Friday.

"I expect its net assets are lower than half of its debts, which surpass 4.5 billion yuan ($700 million), according to the company's financial statement," said Liu Xuhai, chairman of the Zhongyuan Auditing Firm.

Earlier this month, police in Taishun county, Wenzhou, Zhejiang province, arrested Dong Shunsheng, chairman of Liren Group, and six other executives, after coming to suspect that they had raised billions of yuan illegally from the public.

Liu's estimation contradicts an earlier report, which said the company's assets are worth more than 5 billion yuan, enough to repay its 2 billion yuan in debts.

Auditing work in the case is ongoing, Liu said.

If Liu's hunches prove accurate, the chances that thousands of Liren creditors will get their money back will be slim.

The Beijing-based newspaper Economic Information reported on Friday that more than 7,000 people have registered as being creditors of Liren Group, but local authorities said the number is much smaller.

"We started to register creditors on Tuesday, and more than 200 people register each day on average," said the director of Taishun county's information office.

The director, surnamed Hong, said several government officials have been sent to undertake asset review on Liren's operations throughout China. They have looked at everything from its real estate projects in Jiangsu province, to its mining investments in the Inner Mongolia autonomous region.

Zhou Dewen, chairman of the Wenzhou Small and Medium-sized Enterprises Development Association, said Liren may have to declare bankruptcy.

"That seems to be the only way out," he said. "But I am concerned about whether the creditors will be able to get all their money back."

Liren Group went into business in 2003, when Dong established a private middle school. By the time of Dong's arrest, Liren Group had become diversified, entering the real estate and mining industries.

In November, the company announced it would stop paying off debts in cash, citing "financial difficulties". Instead, it offered to repay creditors using debt-to-equity swaps, property and free school tuition.

Previous media reports have said the company's sources of capital have dried up, an effect of the government's tightened monetary policies and a sluggish real estate market.

The last straw came when its coal mine project in Ordos, Inner Mongolia, failed to reap a return last year after the central government set a limit on mine output.

China has tried to crack down on private lending, a practice deemed illegal.

Wenzhou, a city known for having many private businesses, has seen some business owners flee since the middle of last year. Many of their businesses had failed amid the government's tightened monetary policies, and some of the owners were suspected of illegally raising money.