Two weeks after Evergrande’s chairman Hui Ka Yan, filed for bankruptcy protection in the United States, Chinese authorities ordered his arrest. Filing for bankruptcy protection in a U.S. court is believed to be a means for Mr. Hui to protect his overseas assets from prosecution and to continue transferring assets.
Mr. Hui, also known as Xu Jiayin in Mandarin Chinese, was taken by Chinese police in early September and is reportedly being monitored at a “designated” location.
Rags-to-Billionaire Transformation
Mr. Hui was born into a poor family in a rural area of central Henan Province. He once recalled that his elementary school was just a few thatched huts with no windows and could not block the rain. The blackboards were made of cement blackened with ink. The floor of the classroom was dirt. When it rained, it was muddy everywhere. It was freezing cold in the winter.His everyday food was typical of rural Chinese in the 1960s. He was once sent to the village clinic because he had stomach problems from eating moldy Chinese-style cornbread.
His story has been promoted by the Chinese media as an inspirational story for young people, serving as an underlying message that in China, everyone can go from poverty to prosperity if they work hard.
Apparently, that is a blatant lie.
In China, behind every business tycoon there is political backing, particularly in the real estate sector. Without the support of Chinese Communist Party (CCP) officials, a developer cannot even get a piece of land or a construction loan.
So, which CCP official is behind Mr. Hui’s rise?
Yuan Hongbing, a former professor of law at Peking University who now lives in exile in Australia, told The Epoch Times that Mr. Hui is the pawn of Zeng Qinghong’s family, and it is mainly Zeng Qinghong’s brother Zeng Qinghuai and Zeng Qinghong’s son Zeng Wei who directly interacted with Mr. Hui.
In 1996, Mr. Hui founded Evergrande in Shenzhen. He then became acquainted with Zeng Qinghong, a member of the Politburo Standing Committee at the time, and Evergrande’s business rapidly expanded from Shenzhen to the whole country.
Party Power Struggle
As Zeng Qinghong helped Mr. Hui become rich and famous, Mr. Hui willingly acted as his pawn.After Xi Jinping came to power, Zeng Qinghong always tried to bring down Mr. Xi to ensure his own safety. Mr. Hui, as a leading figure in the real estate industry, has caused Mr. Xi a lot of trouble.
In 2016, to cool down the overheated housing market, Mr. Xi emphasized that “housing is for habitation, not for investment speculation.”
However, Evergrande completely ignored this warning and continued to invest huge sums of money to drive up housing prices.
In that same year, Evergrande’s interest-bearing liabilities increased by 80 percent from the previous year, reaching 535.1 billion yuan ($73.4 billion).
This highly leveraged path is certainly unsustainable. Evergrande first defaulted on its commercial paper in November 2020. Another setback came in September 2021 when Evergrande Wealth defaulted on its debt. The situation culminated on Dec. 3, 2021, when Evergrande publicly admitted its inability to address its debt commitments, bringing its debt issues into the global spotlight.
Transferring Assets on the Sly
Over the past two years, Mr. Hui has assured the Xi administration of the completion and delivery of the Evergrande’s new homes and even said that he would sell his assets in Hong Kong and overseas to guarantee the delivery of these projects.According to Chinese state media, Mr. Hui even swore in public at a company meeting that “I can walk away with my hands completely empty, but investors cannot walk away with their hands completely empty.”
Evergrande’s debt situation also appeared to be improving in those two years. As of Dec. 31, 2022, Evergrande Wealth’s unpaid principal and interest shrank from hundreds of billions of dollars to about $34 billion, only 30 percent of the original debt amount. In addition, Evergrande’s high-rise projects were being completed and delivered to homebuyers one by one.
It was later discovered that the Hui family was actively solving the debt problem on the surface, but they were secretly transferring the assets.
Their schemes include using a variable interest entity (VIE) structure to transfer Evergrande’s shareholding to the offshore Cayman company; collecting high-interest dividends from corporate bonds; setting up a family trust to transfer millions of dollars to Mr. Hui’s son, Peter Hui; filing for divorce earlier this year, and then having the “ex-wife” leave China sometime before August.
At the very moment when Evergrande was buried under a massive debt, the Hui family, in contrast, pocketed a cumulative 53 billion yuan (about $7.26 billion) in dividends. Even as of 2021, when the promissory notes had become overdue, Mr. Hui persisted in distributing dividends to himself.
These tactics not only helped the Hui family transfer their assets overseas but also hollowed out Evergrande for their personal gain.
On Aug. 18, Mr. Hui, who had led the Xi administration on with a false promise for nearly two years, filed for bankruptcy protection in a U.S. court. If approved, he will be able to keep a huge amount of assets in his personal pocket and leave 2.4 trillion yuan (about $329 billion) in debt to Chinese companies, banks, and the general public.
The Xi administration ordered Mr. Hui’s arrest in September, which would likely derail his bankruptcy filing in the United States.
According to Evergrande’s Sept. 24 announcement, the company cannot meet the eligibility criteria to issue new notes because it is under investigation. The issuance of new notes is an important part of Evergrande’s offshore debt restructuring plan.
The Epoch Times was unable to contact Evergrande or Evergrande’s creditors for comment.
