Last month Xu Jiayin, the chairman of China’s real estate giant Evergrande Group, was arrested along with several of its top executives based on suspicion of financial illegalities.
This has been seen as peculiar since Mr. Xu—also called Hui Ka Yan—was known to be a fervent supporter of the ruling Chinese Communist Party (CCP).
However, analysts believe the Party’s upper echelon withdrew from Mr. Xu because of his affiliation with Chinese leader Xi Jinping’s rival political faction. This affiliation, combined with how Mr. Xi remains critical of Evergrande’s business practices, has contributed to Mr. Xu’s dwindling support and mounting difficulties that he may not recover from.
On Sept. 30, Lu Yuanxing, a former senior executive in a Chinese company and current political and economic analyst based in the United States, discussed the multifaceted issues surrounding Mr. Xu with The Epoch Times.
He acknowledged that Mr. Xu had been embroiled in questionable practices that bordered on criminal, something not uncommon in the Chinese real estate sector. Mr. Lu said many real estate companies use high leverage to earn money, utilizing funds that do not belong to them without returning the principal.
Mr. Lu said the gains from those illicit practices often find their way into the personal accounts of the owners and the CCP elites behind them, effectively serving as conduits of influence for businesses, also making them the white gloves for the elites.
Troubled Real Estate Empire
A recent article by the Chinese media outlet Northbound Finance, suggests that Evergrande’s involvement in a criminal case elevates the situation to the level of financial crimes. But Evergrande’s difficulties extend well beyond its illicit practices and the recent arrest of Mr. Xu and several top executives.Between August 2021 and May 2023, Evergrande faced numerous lawsuits, raising doubts about its ability to successfully restructure. With the potential collapse of the company posing a threat to the entire Chinese real estate market and related industries, there has been the belief that Evergrande is “too big to fail,” making it likely that authorities will intervene with rescue measures.
As of Dec. 31, 2022, Evergrande’s total debt amounted to approximately $350.2 billion. To help alleviate such debt, efforts were made to sell assets, including Mr. Xu’s private mansion, jet, and select Evergrande projects.
Mr. Lu told The Epoch Times that while Mr. Xu may not be innocent from an economic perspective, the situation takes on a political dimension due to his close association with Zeng Qinghong, a prominent political figure whose family owns Fantasia Holdings Group Company, a large Chinese property developer.
Mr. Zeng helped to facilitate Mr. Xu’s ascent to his position of influence. However, Mr. Xu’s relationship with Mr. Zeng was a liability he may have neglected.
Mr. Zeng was a close ally of former CCP General Secretary Jiang Zemin and was instrumental in consolidating Jiang’s hold on power. For years, Mr. Zeng was the primary force behind the CCP’s organization and personnel. And Mr. Zeng had been the actual controller of Jiang’s faction.
Mr. Lu suggested that Mr. Xu may have assumed, as many others do, that the sheer scale of Evergrande would deter the CCP from going after him or letting the business fail under the weight of its financial difficulties. However, according to Mr. Lu, “Xi Jinping won’t show any mercy or give an escape route to his political opponents,” which Mr. Xu was guilty of by his association with Mr. Zeng.
To illustrate, Mr. Lu offered that during Mr. Xi’s second term, he stressed the policy of “housing is for living, not for speculation.”
After this policy statement, Evergrande continued its practice of property speculation, defying Mr. Xi and illustrating Mr. Xu’s confidence in Mr. Zeng’s political backing.
However, with the decline of the Jiang and Zeng factions, even the Zeng family business was amid financial difficulties, diminishing Mr. Zeng’s influence to shield Mr. Xu from whatever Mr. Xi may do to him.
Mr. Lu likened this situation to the fate of corrupt Party officials, where those taken down in anti-corruption drives are often perceived as political enemies by the authorities, necessitating their elimination. Hence, the future appears bleak for Evergrande and Mr. Xu.
Many in China anticipate that the fate of both could signify the conclusion of an era.
It is unknown whether the CCP will attempt to salvage Evergrande.
After examining the severity of its debt, macroeconomist Wu Jialong told The Epoch Times, “The CCP is definitely not going to rescue Evergrande, and in reality, it doesn’t have the capacity to do so.”
Mr. Wu suggests the CCP would rather use the Evergrande situation to establish a debt restructuring model. A model that involves imposing losses on creditors and serves as a blueprint for future debt crises, encompassing local and state-owned enterprise debts.
The ongoing debt restructuring approach, exemplified by the fate of private property developers like Evergrande, is expected to be extended to larger debt crises in the future.
