ANALYSIS: Evergrande Bankruptcy Linked to Xi’s Purge of Political Rivals

A sign of the Evergrande Center is seen at the Evergrande Center building in Shanghai on Oct. 9, 2021. Hector Retamal/AFP via Getty Images

As the bankrupt Evergrande Group struggles in an abyss of colossal liability, Chinese news media and online platforms have been inundated by rumors about the property conglomerate’s founder, Xu Jiayin (also known as Hui Ka Yan).

As various stories swirl, one thing is certain: like everything in China, Mr. Xu’s fortunes, and those of his company, are tied to those of the Chinese Communist Party (CCP).

Some political observers say Evergrande’s collapse is evidence of a fierce power struggle within the highest echelons of the CCP.

Mr. Xu may have been caught between top CCP boss Xi Jinping and former vice president Zeng Qinghong—with whom Mr. Xu has close ties. Mr. Zeng and his supporters have been repeatedly targeted by Mr. Xi’s moves to consolidate power.

From Steel Mill Worker to China’s Richest Man

Over the past two decades, Evergrande Group expanded rapidly to become the second-largest real estate company in China, competing with the world’s top 500 companies. Its founder, Xu Jiayin, skyrocketed from steel mill worker to China’s richest man.

The saga finally ended with Evergrande’s bankruptcy filing in New York on Aug. 17, after several years and billions of dollars in delinquent debt.

“There must have been a strong backer behind [Xu Jiayin], who could provide him with constant ‘blood transfusions’ and a lot of convenience,” Tang Jingyuan, a China affairs commentator and Epoch Times contributor, said on Sept. 7, citing the past glories of Evergrande. Without that kind of backing, Chinese private enterprise is strangled under the CCP’s economic system, Mr. Tang said.

In an Aug. 30 article in the Chinese language edition of NTD TV, China affairs commentator Wang Youqun connected Evergrande’s bankruptcy with Mr. Xu’s loyalty to the former vice president. The two are directly linked, said Mr. Wang, who is a former secretary to politburo member Wei Jianxing and an Epoch Times contributor.

Mr. Zeng is an influential CCP “princeling”—the term refers to the children of veteran revolutionaries and senior CCP cadres—and a staunch partner of ex-CCP leader Jiang Zemin. For decades, he has strengthened his faction’s economic and political power, incorporating China’s financial sector into its family fortunes, and monopolizing key agencies and industries, including propaganda, banking, technology, and real estate.

Since Mr. Xi came to power in 2012, he has worked to eradicate these opposing factions in the name of anti-corruption efforts or industry regulations.

For his part, Mr. Zeng reportedly joined other party elders in reprimanding the CCP leader at the CCP’s annual Beidaihe meeting of party leaders this summer, according to a Sept. 5 report in Nikkei Asia.

Rumors of Suicide, Prison, Divorce

As Evergrande’s crisis intensified, Chinese media was awash with rumors about its embattled founder. In December, Mr. Xu was rumored to have committed suicide, a story that was reportedly debunked by a voice memo urging his executives to speed up construction. In August, Chinese news portal Tencent fueled speculation that the 64-year-old Mr. Xu was confined to Guanghzou and that visitors to the Evergrande head were limited.

Tencent also reported that Mr. Xu had divorced his wife, Ding Yumei, last year.

Xu Jiayin speaks during a news conference on the sidelines of the fourth session of the 12th National People's Congress, in Beijing, on March 6, 2016. Etienne Oliveau/Getty Images

This news led to suspicions that Mr. Xu was trying to limit his debt by excluding a major family member, anticipating that his personal freedom will inevitably be restricted due to his responsibility for Evergrande’s astronomical debt.

In an Aug. 14 announcement by Evergrande, Ding Yumei was no longer referred to as Mr. Xu’s spouse; but called “a third party independent of the company and its related parties.”

“This is considered a technical divorce, leaving the wealth to Ding Yumei and the debts to Evergrande,” said a financial lawyer in Shanghai, quoted by state financial media STCN.com on Aug. 17.

Online comments read, “Don’t let Xu Jiayin’s wife run away!” and “Don’t let Xu Jiayin run away!”

Piling on Debt, Paying Out Dividends

On July 17, Evergrande posted long overdue results, making public its huge debt deficit. It was the first time the group had posted results since 2021.

The results indicated the company’s total debt was as high as 2.44 trillion yuan ($330 billion) by the end of last year.  Its two-year net loss reached 81 billion yuan ($11 billion) a record-breaking figure in Chinese corporate debt.

Of particular concern is that Evergrande had made so-called “asset disposals"—the removal of long-term assets from a company’s financial records—to its operating income for 2021 and before, leading to a 66.4 billion yuan ($90 billion) loss in the first six months of 2022, according to the Evergrande report.

This meant that the original dividend had lost its performance basis.

Normally, Evergrande practices high dividend income based on performance profit, so that big shareholders and executives derive substantial profits. However, although the real estate developer has paid out a dividend every year except 2016, according to its annual reports, its total liabilities have increased every year since it went public.

Evergrande’s cumulative revenue from 2018 to 2020 was about 1.45 trillion yuan ($300 billion), and the “missing” 66.4 billion accounted for as much as 45 percent of that amount, according to a report from Chinese language finance website 21Jingji.com on July 18.

There were multiple reports in both Chinese and Western media asserting that Evergrande had been borrowing money to pay dividends for years, pushing the company’s debt ever higher.

“As it piled on debt, Evergrande paid out billions in dividends to stockholders, with most of that cash going to Mr. Hui as its largest shareholder,” according to a Wall Street Journal report in September 2021.

“Once such financial falsification is verified, Xu Jiayin will be imprisoned.” a Tencent report said on Aug. 21.

Mr. Xu was once China’s richest man, leading the Hurun China Rich List in 2017.

Chinese authorities had asked Mr. Xu to use his personal wealth to alleviate Evergrande’s debt crisis, Reuters said in a November 2021 article, citing “two separate people with knowledge of the matter.”

Xi Jinping’s Real Estate Crackdown

Early in 2016, Xi Jinping proposed a revamping of the real estate sector. He stressed this again in the Nineteenth National Congress report the following year.

Following Mr. Xi’s statement that “houses are for living in, not for speculation,” the CCP tightened standards for mortgage lending and enacted a series of measures to limit rampant borrowing by developers. As a result, hundreds of real estate companies declared bankruptcy.

Despite the regime’s curbs and the ensuing drop in the housing market, Evergrande’s Mr. Xu continued to borrow heavily, with the company’s debt ratio growing by more than 80 percent per year.

In August 2020, the Xi administration set “three red lines” for property developers, requiring them to keep debt levels within reasonable bounds.

Unable to comply with the new regulations, Evergrande could no longer obtain bank loans in China and was trapped in a financial predicament.

A housing complex by Chinese property developer Evergrande in Huaian, in China's eastern Jiangsu province, on September 17, 2021. STR/AFP via Getty Images

Subsequently, Evergrande defaulted on massive debt in 2021, with a debt load of 2.4 trillion yuan ($330 billion).

Mr. Xi ‘Lit the Fuse’

It is widely rumored in Beijing’s official circles that Mr. Xi personally lit the fuse for Evergrande’s explosion, according to Yuan Hongbing, a Chinese-Australian jurist and commentator.

Mr. Yuan told U.S.-based Chinese news portal Vision Times in September 2021 that Mr. Xi ordered banks to cut off further loans to Evergrande. The Chinese leader took measures to prevent Evergrande from getting loans and capital injections from other financial channels as well. As a result, Evergrande’s chain of capital was broken.

Mr. Yuan also linked the actions with Mr. Xu’s allegiance to Mr. Zeng.

“Xi Jinping intends to destroy his opponents in the power struggle and first conquer his economic foundation. The targeting of Evergrande is the targeting of Zeng Qinghong,” he said.

On Aug. 16, Evergrande’s China unit announced that it was being investigated by China’s Securities and Futures Commission (SFC) for suspected information disclosure violations.

On Aug. 17, the company filed for protection from creditors in a U.S. bankruptcy court.

The critical point of the bankruptcy protection, in Mr. Wang’s view, is to preserve assets transferred abroad by Mr. Xu, Mr. Zeng, and other powerful CCP families. The move would leave Mr. Xi to bear the consequences of Evergrande’s massive debts, he said.

Close Ties to Zeng Qinghong’s Family

Mr. Wang said Evergrande is an example of how powerful CCP families reap enormous profit through “white gloves,” the Chinese term for intermediaries who help with the “dirty deeds” of money laundering.

According to Mr. Yuan, Mr. Xu was the “white glove” for Mr. Zeng’s family. Evergrande’s phenomenal growth was largely due to the support of Zeng Qinghong’s younger brother, Zeng Qinghuai, he said.

As the “behind-the-scenes boss” of Hong Kong’s cultural industry, Zeng Qinghuai is well-connected in rich and influential circles there. According to a report on the Chinese language news portal Liberty Times, it was Mr. Xu’s connection to the younger Zeng brother that led to the support of Hong Kong tycoons who helped Mr. Xu to successfully list Evergrande in Hong Kong.

Mr. Xu is close to Zeng Qinghong’s son Zeng Wei as well. The two were neighbors in Sydney’s exclusive Point Piper neighborhood.

Mr. Xu’s Other Ventures

Mr. Xu has been involved in a range of other speculative industries in addition to the property sector, including the Evergrande Song and Dance Troupe, Evergrande Health, and Evergrande Motor.

Evergrande Song and Dance was established in 2011 with a registered capital of 2 million yuan ($270,000), according to Chinese media.

The troupe numbers more than 100 members; women who not only performed for Evergrande’s senior customers but also participated in large-scale commercial performances. Mr. Xu reportedly spent nearly millions of dollars a year to support the troupe.

The troupe was disbanded in 2022.

In 2018, Evergrande partnered with Brigham Health, a Harvard University teaching hospital, to construct Boao Evergrande International Hospital in Boao Town, in China’s southern island province of Hainan. Hainan is known as the “Hawaii of China.”

The Brigham–Evergrande deal came after Mr. Xu donated $200 million to Harvard in 2016. Mr. Xu invested hundreds of millions of dollars in the state-of-the-art hospital. “Hainan Plans a USD3 Billion Medical Tourism Hotspot,” said a headline in the Macau Daily Times.

However, the project was unsuccessful. According to a December 2021 Boston Globe report, typically there were only about ten patients in the 647-bed hospital. Brigham Health ended its partnership with Evergrande when the contract expired, according to the Boston Globe article.

In July 2020, Mr. Xu renamed Evergrande Health to Evergrande New Energy Vehicle Group, also known as Evergrande Auto.

In July 2023, Evergrande Auto reported a combined net loss of 71.12 billion yuan ($9.95 billion) for 2021 and 2022.

Intertwined Fates

On Aug. 27, Evergrande reported losses of 33 billion yuan ($4.53 billion) for the first half of the year, a narrower net loss versus the same period a year earlier.

A day later, as Evergrande’s stock began trading once more—for the first time since its suspension in March 2022—it lost $2.2 billion, or 79 percent of its market value.

Mr. Xu’s fate has been intertwined with Evergrande’s mounting debts. Although it is not yet clear what lies in store for him, he can look to similar cases.

One is that of Chen Feng, former president of HNA Group, an airline company that branched into real estate, financial services, tourism, logistics, and other enterprises. Mr. Chen was jailed in September 2021 after the conglomerate went bankrupt with more than 700 billion yuan ($96 billion) in debt.

Another is Li Hejun, founder of Hanergy Holding Group, a thin-film solar panel firm. The energy tycoon topped the Huron Global Rich List in 2015. In December 2022, Mr. Li was arrested and questioned by police. Although the cause of his arrest was unclear, Chinese media reported it was connected to the troubled Bank of Jinzhou, which had funded Mr. Li’s initial public offering in 2015 with nearly 10 billion yuan ($1.5 billion). Shortly after the arrest, Hanergy entered bankruptcy and liquidation proceedings, steered by CCP authorities.

News broke Saturday morning that Chinese police had arrested several employees of an Evergrande subsidiary. A statement issued by police in China’s southern city of Shenzhen did not specify the number of employees arrested or the charges against them, but asked the public to report suspected cases of fraud involving the company.