2023-09-27 15:46:39
Evergrande was the second real estate agency china y Today it is the first in debt in the world, flirts with liquidation and accumulates disturbing news. The last one affects its founder and president, Xu Jiayin, investigated by the police and subjected to “residential surveillance” in an unclear location, according to the US agency Bloomberg. Evergrande’s problems synthesize those of a sector that boosted the national economy in the glorious decades and now drags it down.
Residential surveillance is a common mechanism in China at the dawn of an investigation. It does not imply that Xu has already been detained, arrested or charged, but it imposes restrictions on movement and communication. The company has not confirmed the news but media outlets have confirmed that Xu has not contacted his employees in weeks.
It is not the company’s first legal problem. Several directors of Evergrande Wealth, the subsidiary that manages the estate, were detained weeks ago by police in the southern city of Shenzhen, although the company was quick to clarify that it would not affect its operations. In August it emerged that Hengda Real State, the group’s main unit in mainland China, was being investigated by the Securities Regulatory Commission for alleged information disclosure violations. The police operation caused the company’s latest stock market crash and prevented it from taking out the bonds with which it intended to alleviate its desperate financial situation. The offensive suggests that Beijing sees more than incompetence in the mess.
The company has spent two years bailing out water to avoid a liquidation that, with a liability of 300 billion dollars (almost 280 billion euros), does not seem unlikely. His stubborn attempts at restructuring have not worked and he has canceled recent meetings with creditors due to his lack of cash. In March it reported its plan to settle its offshore debt in exchange for promissory notes with different maturities. This week it defaulted on the payment of international bonds worth 83.5 million dollars and other commitments loom on the near horizon. An international debtor already plans to ask for its liquidation in court if it has not presented a credible roadmap in October, the Reuters agency reported yesterday.
Evergrande’s plight summarizes those of the sector. Xu, raised by his grandmother in rural Henan province, founded the company in 1996 on the buoyant eastern coast. He bought land with loans, sold off-plan homes, and funded new projects with the proceeds. He joined the Consultative Conference of the National People’s Congress, one of the most prestigious political bodies, became the country’s greatest wealth and bought the Guangzhou soccer team, which dominated the national championship for years with its million-dollar signings.
Debt and covid
The formula worked for decades thanks to fast urbanization process, a thriving middle class that saw brick as its safest investment and dazzling economic growth. The credit limits imposed on real estate companies approved in 2020 by Beijing to clamp massive debt and the slowdown caused by covid truncated the business. Evergrande defaulted for the first time a year later and negative publicity ruined future sales. There was born a real estate crisis that still persists and that now threatens other giants in the sector such as Country Garden.
The situation worries a government that prioritizes social stability: some investors who see the price of their properties collapse and others who do not even know if they will receive the homes they have already paid for. The crisis has pushed Beijing to moderate its restrictive policies in recent months, allowing the state financial system to open lines of credit to construction companies in difficulty.
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