One of Asia’s greatest falls from grace: the founder of the Evergrande group, one of the richest men in China, was sentenced to life imprisonment this Thursday. Xu Jiayin was found guilty of multiple crimes, marking another step in the downfall of one of the symbols of the economic boom in the Asian giant.
Xu Jiayin, 67 years old and also known by his Cantonese name Hui Ka Yan, had pleaded guilty in April to multiple charges related to his time as chairman of China’s largest real estate developer, including fraud and embezzlement. This culminates the spectacular fall of this businessman, who rose from humble origins during a turbulent political era to ascend to the highest spheres of influence and wealth in Asia. He became the second richest man in Asia in 2017 with a fortune exceeding 42 billion dollars.
In addition to life imprisonment, the confiscation of Xu’s personal assets was ordered and he was deprived of all his political rights, according to the official Chinese news agency Xinhua, citing the ruling issued by a court in the metropolis of Shenzhen.
Five other senior executives of the Evergrande Group were also sentenced on Thursday to prison terms ranging from six to 18 years for crimes such as fraud, the court said. A total of 56 people were sentenced to prison, including Xu’s two sons, with the shortest sentence being one year and 10 months.
Meanwhile, the Evergrande group was fined 8.82 billion yuan (about 1.3 billion dollars) and Evergrande Real Estate 7 billion yuan (about 1 billion dollars). This issues one of the largest corporate criminal fines ever imposed by the Chinese government.
“The criminal conduct of China Evergrande Group, Evergrande Real Estate and Hui Ka Yan seriously disrupted the order of the socialist market economy, violated public and private property rights, and undermined the integrity of public officials in the exercise of their duties,” the sentence stated.
The court also determined that Evergrande Group and Xu obtained control of financial institutions through bribes and other means, and illegally obtained credit and insurance funds for the use of the Evergrande group. These actions involved crimes such as offering bribes by an entity, illegal loan granting, and illicit use of funds.
Likewise, the court indicated that Xu took advantage of his position as chairman of Evergrande Real Estate to organize financial frauds and misappropriate company assets, in the form of dividend payments.
This sentence is a key moment amid the real estate crisis that China is experiencing, where consumer confidence has been undermined. Xu Jiayin’s story was, until now, the classic one of a millionaire who started from the bottom, “a self-made man.”
Born in 1958, the year leader Mao Zedong launched his “Great Leap Forward”, an industrialization plan that caused a massive famine, Xu grew up in a rural family in the village of Jutaigang, in Henan province.
Xu, whose mother died when he was one year old, recalled in a speech how he only ate sweet potato and steamed bread during his school years. “The sheets I laid, the quilts I covered, and the clothes I wore were covered with piles of patches,” he said. “At that time, my greatest wish was to leave the countryside, find a job, and be able to eat better.”
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After leaving school in 1976, the end of the decade-long Cultural Revolution, he struggled to find work. He worked on a farm and as a security guard while trying to enter university. He studied metallurgy in Wuhan as a scholarship student.
He began his working life in a state steel factory. However, in 1992, with savings of 20,000 yuan (less than 3,000 dollars), he headed to the booming city of Shenzhen, located across the border from the then British colony of Hong Kong, to pursue his dreams in the real estate sector. Two years later, he carried out his first project in Guangzhou.
In 1996 he founded the company that would catapult him to national prominence and unimaginable wealth. Over the next two decades, Evergrande built many of the homes, office buildings, and urban infrastructures that drove China’s miraculous economic growth.
At its peak, Evergrande had about 200,000 employees, generated more than 110 billion dollars in sales, and owned more than 1,300 real estate projects in over 280 cities. It financed a football club, Guangzhou Evergrande, which became champion of China and Asia.
He also became known for his love of luxury brands, particularly the French brand Hermes, earning him the nickname “Belt Xu” after being seen wearing a Hermes belt at the national political congress. Some speculated that his success was due to close and useful relationships, even with the brother of former Prime Minister Wen Jiabao.
However, over the years, Xu’s taste for yachts and luxury clashed with President Xi Jinping’s crackdown on extreme wealth as Beijing intensified its scrutiny of corruption within the financial sector.
The real estate sector and related industries used to represent up to 30% of China’s GDP at that time. For a long time, analysts were concerned that Evergrande’s collapse could trigger broader risks for the Chinese real estate market, harming homeowners and the global financial system as a whole. Its aggressive expansion strategy ended up being a double-edged sword, as it accumulated record debt that made it the most indebted real estate developer in the world, according to Nikkei.
During the years of real estate boom in China, many developers like Evergrande accumulated huge debts to build homes, thus fueling demand as the country gained wealth. The resulting oversupply of housing has led to the emergence of ghost towns and abandoned projects in numerous localities.
Observers assessing the health of the world’s second-largest economy have closely followed the Evergrande saga and similar problems faced by other real estate giants, including Country Garden and Vanke. New home prices in China have been contracting for three years.
Last year, new home sales in China fell to their lowest level since 2014, according to official data, standing at just 7.3 trillion yuan (1.08 trillion dollars), compared to 16.2 trillion yuan (2.4 trillion dollars) recorded in 2021, at the sector’s peak. Although Beijing has implemented various measures in recent years to stabilize the real estate market, the end of the crisis is not in sight.
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