1996年，許家印剛創立了當時只有8名員工的恆大，並向銀行借款，迅速擴張自己的商業帝國。 1997年，許家印的住宅項目金碧花園是他的第一筆投資，為他日後的成功鋪平了道路。 2008年，許家印當選為全國政協委員，成為為大陸政府建言獻策的精英之一。2009年，迅速擴張的恆大在香港股市成功集資90億美元，為他與一些香港富商建立更密切的關係打開了大門。
The fall of a Red Capitalist in China and its implications
The predicament of the former Chairman of China Evergrande Group, Xu Jiayin (or Hui Ka Yan in Cantonese), who was put under “residential surveillance” in September 2023, signaled not only the fall of the red capitalist after years of his prominent emergence, but also tremendous loopholes in the management of Chinese real estate market, the banking-business relations, and the incomplete reforms embedded in the mixed socialist-capitalistic economy of China.
Evergrande announced in late September that Xu was subject to “mandatory measures” and that the Hengda Real Estate was under investigation. Later, Evergrande’s former chief executive Xia Haijun and former financial officer Pan Darong were detained in an investigation of its financial operations.
The rise and fall of Xu Jiayin deserve our attention and deeper analyses because of his “red capitalist” nature in a socialist regime.
Xu was born in Henan province in 1958 during which the Maoists launched the Great Leap Forward Movement. Losing his mother at the age of eight months, Xu was raised by his hardworking father and grandmother. After his graduation at the Wuhan Iron and Steel Institute in 1982, he worked in a steel company as a technician until 1992. Then he went to try his fortune in Shenzhen, a fast-growing special economic zone in Deng Xiaoping’s reformist China. Supported by his superior, Xu originally worked as a salesperson in a property company, accumulated some capital and gradually developed his own property business in the city of Guangzhou.
In 1996, Xu founded Evergrande originally with only eight employees and borrowed loans from banks, expanding his business empire quickly. In 1997, Xu’s housing project Jinbi Garden was his first investment paving the way for his future success. In 2008, Xu was elected a member of the Chinese People’s Political Consultative Conference, becoming one of the elites giving advice to the mainland government. In 2009, the rapidly expanding Evergrande succeeded in raising US$9 billion in the Hong Kong stock market listing, opening the door to his closer networking with some rich Hong Kong businesspeople.
Some mainland netizens portrayed Xu as having good guanxi (personal connections) with a few Hong Kong tycoons, who invested in Xu’s business empire during its expansion and amid the initial period of his financial difficulties. In 2012, when he attended a party conference, Xu was seen as wearing a golden buckled belt – a sign of how a “red capitalist” rose quickly in the Chinese politico-economic arena. His business empire invested in football modernization; the Guangzhou Evergrande football club impressively won eight Chinese Super League titles and two Asian Champions Leagues between 2011 and 2017. In 2017, Xu was regarded as one of the wealthiest people in Asia with an estimated US$42.5 billion. At its peak, Evergrande had some 1,300 projects in 280 cities.
In 2020, the central government in Beijing brought in tighter rules to limit the amount of money owed by large real estate developers. The “three red lines” emerged: developers must cap their ratio of liability to asset to 70 percent, limit their ratio of net debt to equity to 100 percent, and acquire more cash than short-term debts. Banks were ordered not to lend to land developers who crossed the three red lines. In the wake of these tight measures, the financial troubles of Xu’s company came to surface. In May 2023, the Evergrande Group said that its overdue debt, unpaid bills and payments amounted to RMB 900 billion. Evergrande’s stock market valuation began to shrink, and Xu’s fortune plunged considerably.
At a time when Xu’s fortunes dipped, his loyalty to the ruling regime remained unquestionable. On July 1, 2021, during the one hundred anniversaries of the Communist Party of China, Xu was an official guest celebrating the event and saying that “all those things possessed by me and Evergrande came from the Party, the state and the society.”
Before his “residential surveillance” by the police, Xu tried to rescue the financial situation of his company, which was undergoing a restructuring plan that would offload assets to avoid defaulting its huge debt of US$300 billion. In 2021, Xu promised to accelerate the construction and completion of pre-sale properties. After 100 citizens protested at Evergrande’s headquarters in September 2021 to demand the repayment of loans and financial products, the company attempted to address their grievances through compensation. Objectively speaking, Evergrande during Xu’s last phase of his leadership attempted to address its debt and managerial problems. Yet, the remedial action appeared to be too late. As of mid-October 2023, it was reported that about 800,000 of 1.2 million pre-sold properties were not yet completed.
In August 2023, Evergrande filed for bankruptcy protection in the US – a move referred to the restructuring process in Hong Kong, the Cayman Islands and the British Virgin Islands. However, this move prompted some critics in the mainland to question in social media in September whether the company’s debt would perhaps be “transferred” back to the mainland. Public distrust of Xu and his company became obvious in the mainland social media in late September and early October 2023.
Xu’s “residential surveillance” was coincidentally followed by the mainland detention of a bank executive for their alleged involvement in giving out illegal loans. Liu Liange, the chair of the Bank of China from 2019 to 2023, was facing corruption charges and he resigned from his position in March 2023.
In mid-September 2023, several employees working in the wealth management unit of the Evergrande Group were placed under criminal investigation in Shenzhen. According to the mainland media, the Evergrande Financial Wealth Management Company was established in 2015 as a wholly owned subsidiary of the Evergrande Group. On the other hand, Evergrande Life Assurance Company was taken over by the state-backed Hai Gang Life, according to a notice issued by the National Administration of Financial Regulation.
The fall of Xu and the financial difficulties of Evergrande showed that, first, amid the development China’s mixed economy, the socialist style of governmental intervention remains decisive and interventionist in controlling the behavior and performance of red capitalists and their enterprises. Xu’s development was a typical example of how China has been determined to crack down on excessive borrowing by any land developer, the alleged abuse of power in the banking industry’s offer of excessive loans, and any maladministration within Evergrande’s wealth management.
Furthermore, the pre-sold properties that were adopted by Xu and his company associates showed tremendous gaps. A lot of properties failed to be completed, but home buyers paid their installments with the expectation that their apartment units would be finished. Mainland media, especially self-made videos uploaded onto various platforms, were unprecedentedly critical of Xu, saying that he and his subordinates developed an “unacceptable” practices of not only continuing to borrow loans from banks to acquire more housing projects in third and fourth tiered mainland cities, but also contracting out to contractors which however failed complete the construction projects on schedule. The internal supervision over building contractors appeared to be lax, while Evergrande’s business empire was overstretched to other areas, including the automobile industry and sports – a bridge too far for an overambitious real estate corporation where internal mismanagement in wealth, reinvestment and contracting-out projects became acute.
Compounding the problems of overborrowing and overexpansion was Xu’s increasingly luxurious lifestyle. The mainland social media and netizens pointed to his dancing troupe in Guangzhou and private jet and yachts. Mainland videos showed Xu’s public remarks about his difficult childhood and teenager years when he relied on potato starch and salt water for his living, but the rapidly rising red capitalist became gradually imbued with “bourgeois” lifestyle.
However, Xu showed his humanistic side; he was a philanthropist donating money to the poor and the needy in the Guizhou province. In 2018, Xu returned to his home village where he handed out money, rice and cooking oil to each household. His socialist instinct was not fading amid the dialectical process of being “corrupted” spiritually by the increasingly “bourgeois” society and environment.
Another problem that emerged in the downfall of Xu was the symbiotic relations between the local governments and land developers in third and fourth tiered cities. From a rational choice perspective, local governments in small cities had a personal stake in boosting land and housing projects through their connections with land developers. Local officials and party cadres wanted promotion and self-enrichment by cultivating close relations with the red capitalists. If so, Xu’s company investment in various cities became a win-win scenario provided that such housing and property projects would be completed. Yet, the mismanagement in supervising the completion of housing projects turned out to be highly risky, putting the interests of home buyers at stake. A large real estate that could not deliver its products and promises to citizens could potentially undermine the social and economic aspects of national security in China. As commentator Hu Xijin wrote in Global Times on September 29: “I strongly hope and believe that the actions taken by various regions to ensure the delivery of housing projects will not be affected by Xu’s personal fate. Minimizing the losses for homebuyers should be the primary consideration in handling the Evergrande case.”
Some mainland media claimed that Xu and his wife Ding Yumei adopted “technical divorce.” Whether it was true or not, many netizens in the mainland were critical of how Xu oversaw his company’s investment and how he “enriched” himself at the expense of public interest. Critics pointed to the dividends continually received by the top executives of Xu’s company while its clients suffered from the indefinite delay in the completion of housing and property projects.
The fall of Xu and the financial and managerial problems associated with Evergrande raised a serious question about the effectiveness of auditing in China’s real estate market. A healthy company must have external and internal auditing, which serves as an essential checks and balance mechanism for good corporate governance. A neglected lesson for China is how the auditing process and requirements for all private corporations, especially land developers, can be reformed and enforced annually and rigorously. A chief economist of Evergrande, Ren Zeping, joined the company in 2017, but he complained that any internal call for the need to reduce debt ratio was criticized in his meetings with top executives – an indication that corporate governance within Evergrande lacked sufficient and healthy checks and balances.
In the final analysis, the mixed economy of China remains partial in its reforms, including the long overdue supervision over the relations between state-owned banks and land developers, the excessive loans offered by banks, the internal mismanagement and overstretched expansion of any land developer into other areas that could easily be undermined as a result of chain reactions (like the incomplete Guangzhou football stadium that was eventually taken over by the mainland government).
In conclusion, the fall of Xu Jiayin as a red capitalist loyal to the ruling regime in China have tremendous social, economic and political implications. China’s mixed economy remains to be reformed; the central authorities have identified serious loopholes in regulating the relations between banks and land developers and controlling the amount of bank loans offered to the red capitalists in the real estate market. Any overstretched and mismanaged real estate enterprise, like Evergrande, could have serious ramifications on the society and economy. Disgruntled clients’ protests outside the Evergrande headquarters in September 2021 could be interpreted as a potential action endangering social stability. Maladministration within Evergrande in dealing with wealth management, investment and project completion became the problems that must be addressed quickly to appease public anger. The socialist regime in the mainland has a fast-developing mixed economy in which the capitalistic and marketized aspects have clearly “corrupted” the relations between the executives of the banking industry and the elites of the real estate market, while the socialist aspects have demanded immediate and effective governmental controls over corporate misgovernance, which can have detrimental impacts on the mainland’s social and economic security.