In a brief trial last week in Shenzhen, Xu Jiayin (Hui Ka Yan, in Cantonese), the founder of collapsed real-estate conglomerate China Evergrande Group, pleaded guilty to eight charges including the misuse of funds, fraudulent fundraising, and illegally taking public deposits. Xu, whose verdict and sentencing will take place at a later date, could face life imprisonment.
At Reuters, Clare Jim reported on the court proceedings, which lasted only a day and a half, and what they bode for Evergrande’s creditors and customers:
While the indictment of the billionaire founder of what was once China’s No.1 property developer would mark an end to his rags to riches story, it is unlikely to bring much solace to Evergrande’s domestic and foreign creditors.
Evergrande has defaulted since 2021 on most of its $300 billion in liabilities, in troubles emblematic of China’s property sector woes that have long dragged on economic growth.
Founder Hui Ka Yan “pleaded guilty and expressed remorse” in trial proceedings on Monday and Tuesday against him and Evergrande, the court said in a posting on its official WeChat account.
[…] “The chances are extremely high that Hui will receive life sentences, given the amount of money involved, the number of victims, and the associated financial risks and social impact are almost unprecedented in China,” said Xinpeng Zhu, a lawyer at Shanghai Rongying Law Firm, who represented investors in Evergrande’s debt.
“The court’s ruling will serve as an answer to the prevailing sentiments in society and a means of easing public anger.” [Source]
Despite the low-key nature of the trial, it has attracted intense public interest on Chinese social media, and brought renewed attention to the financial woes, unfinished projects, and questionable business practices that have plagued the real-estate sector in China. Property developer Pan Shiyi, who cofounded SOHO China with his wife Zhang Xin in 1995 (the pair stepped away from their company in 2022 and now live in New York City), recently resurfaced on WeChat after three years of radio silence to post some thoughts on the “Ponzi scheme” nature of the Chinese property market. That post, archived at CDT, was later censored across numerous Chinese social media platforms. A related post from WeChat account Beast Office, “Pan Shiyi Tests the Waters,” was also censored online but added to our archive.
CDT Chinese editors have archived four recent articles about Evergrande and Xu Jiayin’s trial, and several related to Pan Shiyi’s surprise reappearance on Chinese social media. Of the four pieces about Evergrande and Xu, two point out that there were many other individuals complicit in Evergrande’s malfeasance but that they will likely go unpunished, insulated by their high-level connections. Portions of these are translated below.
In “Xu Jiayin Pleads Guilty, but Did He Really Manage To Dig That 2.4 Trillion Yuan Pit All by Himself?” from WeChat account History Rhymes, current-affairs commentator Xu Peng highlights the stark contrast between a small group of politically well-connected individuals who struck it rich during China’s property-development heyday, and the millions of ordinary citizens who accumulated unprecedented levels of debt, or even lost their life savings due to unfinished housing projects, cratering real-estate prices, and other knock-on effects of the Evergrande collapse:
The charges against Xu—illegally taking public deposits, fraudulent fundraising, illegal lending, illegal use of funds, fraudulent issuance of securities, violations regarding the disclosure of pertinent information, embezzlement, and corporate bribery—are primarily economic crimes, which frankly are unlikely to result in a death sentence. At most, he might be sentenced to life in prison.
[…] But if you dig a little deeper, you will find that this matter is far from simple.
An individual can steer the direction of a company, but no single person could possibly pile up 2.4 trillion yuan ($350 billion U.S.) in debt all by himself.
Lurking behind the scenes are too many uncomfortable truths that can never be fully examined.
Perhaps many years from now, when people look back on this chapter, they will call it “the most insane period in Chinese real-estate history.”
Some became spectacularly wealthy, while others “pooled the contents of six wallets” [referring to a married couple who purchase a house by combining their savings with the savings of both sets of parents] for a mortgage they’ll be paying back for the next thirty years.
Thus did Xu Jiayin become the most “representative” person in this period of our history.
Now he has pleaded guilty, and it remains to be seen how the court will sentence him. [Chinese]
An article from WeChat account 小干体 (Xiǎo gàn tǐ), run by a family heritage researcher who blogs about various societal topics, is titled “Xu Jiayin’s Eight Unpardonable Crimes.” The author writes that Xu’s guilty plea, the brief one-and-a-half-day trial, and the lack of publicity that preceded it suggest that a deal was reached beforehand: Xu would take the fall, but countless others who were complicit in and profited from Evergrande’s corporate malfeasance would remain unknown and unpunished:
The trial was scheduled to last two days, yesterday and today. Yet by midday, it was announced that proceedings had reached a conclusion this morning.
Thus was a case of great magnitude disposed of in a mere day and a half.
Furthermore, Xu Jiayin entered a guilty plea and expressed remorse before the court—a clear sign that a deal had been reached beforehand, and that the trial itself was merely a procedural formality.
What’s more, there hadn’t been the slightest whisper of the proceedings before the hearing commenced, which further confirms that the more hushed-up things are, the bigger the crimes.
All things considered, I stand by my earlier view, expressed in my article “Evergrande’s Party Committee Committed Serious Errors,” that Evergrande’s in-house Communist Party Committee failed to properly discharge its oversight duties, which led to that “outstanding senior cadre” [Xu Jiayin, who was both the Chairman and Communist Party Secretary for Evergrande] committing such unpardonable errors.
I expect that the many others who gorged themselves at Evergrande’s trough will be let off lightly. After all, they were merely accessories [to Xu’s crimes], and thanks to friends in very high places, they are untouchable. [Chinese]
WeChat account 摩登中产 (Módēng zhōngchǎn, Modern Middle Class) published “The Era Writes an End to Xu Jiayin,” an in-depth look at how Xu’s life, education, work, and fortunes in many ways paralleled China’s overall national trajectory. The author peppers the piece with fascinating details about Xu’s early life, relentless work ethic, and the overwhelming ambition that brought him enormous success, but culminated in his downfall:
He revered the rules, broke free of them, and eventually wrote his own. Supremely confident in his own calculations, Xu never realized that he himself was nothing more than a variable in the larger calculus of an era.
Under that calculus, he studied tirelessly by the dim light of a kerosene lamp, proudly watched the Chinese women’s volleyball team [win the 1981 Women’s Volleyball World Cup] and cheered the “revitalization of China,” strode across the factory floor full of youthful vigor and ambition, skillfully cornered the property market, and dreamed of leaving a legacy for the ages, until his runaway greed landed him behind bars.
He always believed he was the author of an era, but in the end, it was the era that wrote an end to him. [Chinese]
A piece titled “Where Did Evergrande’s 2.4 Trillion Yuan Go?” from WeChat account 装看见 (Zhuāng kànjiàn, “Pretending to see”) argues that Evergrande’s colossal debt of 2.4 trillion yuan didn’t just evaporate; it was systematically extracted in four main ways. First, the author claims, Xu Jiayin and his family siphoned off over 50 billion yuan (over $7.3 billion U.S.) in dividends between 2009 and 2022, transferring the funds to offshore accounts and family trusts, and purchasing luxury properties, private jets, and yachts with the proceeds. Second, vast sums were burned by Evergrande’s reckless diversification into money-losing ventures such as football clubs, electric vehicles, mineral water, and entertainment. Third, the company fell into a debt spiral, forced to take on ever more expensive new debt simply to service the older debt. And fourth, writes the author, Evergrande engaged in systematic fraud by overstating revenues, issuing bonds under false pretenses, and misappropriating funds to put up a false front even as it was nearing collapse. The author then turns to examine the era that made such excess possible, arguing that Xu and many of his peers misguidedly chalked up the windfalls they earned during China’s property boom to their own personal genius. The article contrasts what it describes as Xu’s hubris and recklessness with the prescience and pragmatism of SOHO property-developer Pan Shiyi:
From 2019 to 2020, Evergrande overstated its revenues and profits, fraudulently issued bonds, engaged in illegal lending, misappropriated funds, illegally accepted deposits, and committed fundraising fraud.
The proceeds were used to mislead [investors and regulators], pay bribes, fill funding shortfalls, and maintain a facade of prosperity. In the end, it all turned into bad debt, uncollectible debt.
Those were the jubilee years for real-estate tycoons, whose stubborn faith that property prices would only continue to rise led them to relentlessly leverage and expand the scope of their businesses.
Taking money from the bank, buying land and building houses, pocketing the cash but keeping the debt on the balance sheet—those who played the game this way chalked it up to their personal talent and ability.
But the reason they were able to make money so easily back then wasn’t because they were particularly capable; they simply benefited from the era’s favorable conditions.
In 2021, risks began to surface in the real-estate industry, but few wanted the merry-go-round to stop. For one thing, it was easy money, and for another, no one believed that the risks would ever actually materialize.
Some people are confident that they will have the last laugh, whereas others, even at their earnings peak, are already planning their exit strategy.
I thought of Pan Shiyi, who belongs to the latter category. He started selling off his properties in 2014, and eventually cashed out 30 billion yuan. When he left the country, his money left with him.
When it comes to making money, Pan Shiyi is extremely clear-headed. He knows it’s best to stop while you’re ahead and cash out your winnings.
Pan Shiyi’s clarity is partly down to his wisdom in choosing a good wife. Without Zhang Xin, Pan Shiyi wouldn’t be where he is today.
With extraordinary foresight, the couple began planning their strategy in 2005, and completed it in 2021, a full 16 years later.
It’s also possible that Pan may have been influenced by [Hong Kong property magnate] Li Ka-shing. When Li began divesting [from China] in 2013, Pan Shiyi followed suit and began selling off his own properties in 2014.
In 2015, the refrain “Don’t let Li Ka-shing run away!” might not have set off alarm bells for anyone else, but it spurred Pan Shiyi to hurry up and sell, sell, sell.
Li Ka-shing’s adage, “Never try to earn the last penny,” is a potent warning against unchecked greed. [Chinese]
