A court in Shenzhen, a city in southern China, publicly announced its verdict on Thursday (August 20). Xu Jiayin, a Chinese real estate developer and founder of Evergrande Real Estate Group, was sentenced to life imprisonment, deprived of political rights for life, and confiscated all personal property. The illegal gains will continue to be recovered, and the shortfall will be ordered to be refunded. Evergrande Group was fined RMB 8.82 billion for several crimes and Evergrande Real Estate was fined RMB 7 billion.
The verdict marks a milestone in the Evergrande turmoil. After Chinese authorities cracked down on excessive borrowing in the real estate industry in 2020, Evergrande collapsed with more than $300 billion in debt, straining the capital chains of many developers and bringing about a downturn in the real estate market - which has been a drag on the overall economy ever since.
The Shenzhen Intermediate People's Court found that between 2016 and 2021, Evergrande Group, Evergrande Real Estate and Xu Jiayin violated national laws and regulations, used continuous and large-scale financial fraud and other means to falsely increase assets and conceal liabilities, and respectively carried out criminal acts such as illegally absorbing public deposits, fund-raising fraud, fraudulent issuance of securities, and illegal disclosure of important information.
The court also said that Evergrande Group and Xu Jiayin obtained control of financial institutions through bribery and other means, illegally obtained credit funds and insurance funds for the use of Evergrande Group, and committed crimes such as corporate bribery, illegal granting of loans, and illegal use of funds. Xu Jiayin also took advantage of his position as chairman of Evergrande Real Estate to organize financial fraud and misappropriate company property in the name of dividends.
On the same day, the Shenzhen Intermediate People's Court and the Shenzhen Nanshan District People's Court also publicly announced that 56 other people involved in the Evergrande Group's cases of illegally absorbing public deposits, fund-raising fraud, and illegal use of funds were sentenced to prison terms ranging from 18 years to one year and ten months, and were fined or had their property confiscated; illegal gains continued to be recovered, and the shortfall was ordered to be refunded and compensated.
Authorities in Hong Kong and mainland China have previously said that investigations found that Evergrande manipulated financial data through a variety of techniques, including recognizing sales revenue in advance before the actual sales of the properties. Authorities said its revenue was inflated by about $80 billion between 2019 and 2020.
After Xu Jiayin was arrested in China, he pleaded guilty in April this year to multiple charges including illegally absorbing public deposits, fraud, and bribery.
China Evergrande was established in 1996. In November 2009, Evergrande was listed in Hong Kong, with a market value of US$9 billion, setting a record for a Chinese private real estate developer listed in Hong Kong at that time. Eight years after its listing in Hong Kong, Evergrande’s market value soared to US$51 billion.
Borrowing money to buy land, selling the house before it was built, and using the cash to pay off the loan and fund the next real estate project - this was how Xu Jiayin made money from the beginning. In the two decades since the mid-1990s, as China's housing prices continued to soar, Xu Jiayin relied on this business model to rise from a steel factory worker from the countryside to the head of a huge real estate empire.
According to four former Evergrande employees and a person familiar with the company, Xu Jiayin was an ambitious businessman who made high demands on his employees, was charming with creditors and was sometimes self-indulgent. He has a team of female personal assistants, at least some of whom are hired primarily for their appearance.
Xu Jiayin became the richest man in China in 2017. At the opening of the National Committee of the Chinese People's Political Consultative Conference in March 2012, Xu Jiayin was surrounded by reporters. He jogged all the way with a smile on his face. The golden Hermès belt around his waist was particularly eye-catching. He was nicknamed "Brother Belt" at the time.
However, in 2020, Evergrande's debt problems began to emerge as Chinese regulators implemented the "three red lines" policy aimed at curbing new interest-bearing loans by real estate companies and severely cracked down on excessive borrowing in the real estate industry.
Evergrande will default on its debt in 2021. Before being ordered to be liquidated, Evergrande was the world's most indebted real estate developer, with more than $300 billion in debt and more than 90% of its assets located in China. In September 2023, Xu Jiayin was suspected of violating the law and was subject to compulsory measures in accordance with the law.
Evergrande has also become the most representative case in the debt crisis of Chinese real estate companies. The story of Evergrande reveals the inner workings of a Chinese real estate giant, and its development trajectory also reflects the fate of China's real estate market. Real estate activity in China, which once contributed about a quarter of China's GDP, has fallen into a slump in the past few years. Beijing has tried to revive the real estate sector, but stimulus measures appear to be struggling.
