The China Evergrande fraud case, involving total liabilities of as much as RMB 2.43 trillion (approximately US$337.5 billion), has reached its first-instance verdict. Founder Xu Jiayin was sentenced to life imprisonment and had all his personal assets confiscated for large-scale financial fraud, while the Evergrande group of companies was fined more than RMB 15.8 billion (approximately US$2.2 billion) in total. The once-property giant, whose market capitalization had exceeded HK$400 billion (approximately US$51 billion), ultimately collapsed under debts of as much as RMB 2.43 trillion (approximately US$337.5 billion), leaving some 160,000 retail shareholders who were unable to exit with their holdings effectively wiped out.
The Intermediate People’s Court of Shenzhen, Guangdong Province, publicly announced its first-instance verdicts in the cases involving Evergrande Group, Evergrande Real Estate, and Xu Jiayin. Evergrande Group was convicted of multiple offenses and fined RMB 8.82 billion (approximately US$1.23 billion); Evergrande Real Estate was fined RMB 7 billion (approximately US$972 million); and Xu Jiayin was sentenced to life imprisonment, deprived of his political rights for life, and ordered to forfeit all of his personal assets.
Founded in 1996, Evergrande Rose on the Back of China’s Housing Reform
Evergrande Group was founded by Xu Jiayin in 1996. Originally known as Evergrande Real Estate Group, it initially focused on residential development and launched its first housing project in Guangzhou in 1997. When China’s housing reform began in 1998, Xu Jiayin capitalized on a business model built around “high debt, high turnover, and high leverage,” becoming one of the biggest beneficiaries of the reform of China’s housing system.
By 2009, Evergrande was preparing for its IPO in Hong Kong, attracting several prominent tycoons to its IPO investor roadshow, including the late Cheng Yu-tung, founder of New World; Joseph Lau, major shareholder of Chinese Estates; Zhang Songqiao, major shareholder of C C Land; Albert Yeung, chairman of Emperor Group; and Ip Tak-chuen, deputy managing director of CK Hutchison, among others.
2009: Went Public and Surged More Than 30% on Its First Trading Day
Evergrande Group officially went public on the Hong Kong Stock Exchange on November 5 under the stock code “3333.” Its IPO was priced at HK$3.5 per share, and the stock surged more than 30% to HK$4.7 on its first day of trading. In addition to Xu Jiayin attending the listing ceremony in person, Cheng Kar-shun, then chairman of long-time ally New World, also appeared to show his support, officially ushering in Evergrande’s golden era.
After raising funds through its IPO, the group began expanding aggressively in China’s property sector, acquiring land on a massive scale nationwide, developing projects rapidly, and selling them quickly. In 2013, China Evergrande’s sales revenue surpassed RMB 100 billion (approximately US$13.9 billion) for the first time. In 2016, it entered the Fortune Global 500 and became the world’s largest listed property developer by sales.
2017: Expanded Beyond Real Estate into a Business Empire
As Evergrande’s share price continued to rise, its market capitalization surpassed RMB 400 billion (approximately US$55.6 billion) in 2017. Evergrande was no longer satisfied with focusing solely on real estate and gradually diversified its investments into electric vehicles, sports—including Guangzhou Evergrande Football Club—finance, healthcare, and cultural tourism, among other sectors. However, as the group expanded, its debt ratio also continued to rise. Although the company pledged in 2018 to reduce its debt ratio to 70%, its debt continued to balloon in practice.
2020: China’s “Three Red Lines” Triggered a Crisis
The turning point came in 2020, when the Chinese government introduced the “Three Red Lines” policy. Under the policy, property developers were required to keep their asset-liability ratio, excluding advance receipts, below 70%; their net debt-to-equity ratio below 100%; and their “cash-to-short-term debt ratio” above 1. The policy placed enormous pressure on Evergrande, which had long relied on borrowing to sustain its operations.
By 2021, the risks inherent in Evergrande’s highly leveraged, heavily indebted business model erupted all at once. In December that year, Evergrande announced a default on its first U.S. dollar-denominated bond, officially plunging the company into a financial crisis. Its share price subsequently went into a prolonged decline, falling from HK$14 to below HK$2 within a year.
2023: Xu Jiayin Placed Under Criminal Investigation
Although Evergrande sold assets in 2022, including part of its stake in its electric vehicle business, progress on its debt restructuring remained slow. According to its financial disclosures, as of the end of December 2022, Evergrande Group’s total liabilities had reached as much as RMB 2.43 trillion (approximately US$337.5 billion), setting a record for the largest loss ever recorded by a Chinese company. The crisis also triggered a chain reaction across China’s property market, with multiple developers subsequently falling into debt crises and confidence in the industry sinking to a low point.
In March 2023, Evergrande proposed a restructuring plan, seeking to convert its offshore debt into new bonds or equity. However, the plan fell through after Xu Jiayin was placed under compulsory measures in accordance with the law in the second half of the same year over suspected violations of the law. Although Evergrande resumed trading in August 2023, its share price continued to plunge. By the time trading was suspended in January 2024, the stock had fallen to just HK$0.16, reducing its market capitalization to only RMB 2.152 billion (approximately US$299 million).
2024: Ordered to Wind Up as Its Shares Collapsed
Meanwhile, the High Court of Hong Kong officially issued a winding-up order against Evergrande in January 2024. The China Securities Regulatory Commission also announced that Evergrande was required to pay a staggering RMB 4.175 billion (approximately US$580 million) in fines, while Xu Jiayin was personally fined RMB 47 million (approximately US$6.5 million) and banned for life from participating in the securities market.
At the peak of Evergrande’s fortunes in 2017, institutional investors held more than 60% of its shares, and the total number of shareholders was fewer than 30,000. However, in the early stages of Evergrande’s crisis, the number of retail investors surged to as many as 410,000, while average daily trading volume exceeded 100 million shares. Before trading was suspended in 2024, some 280,000 retail investors still held Evergrande shares. By the time the company was delisted, as many as 160,000 retail investors were still unable to “get out,” leaving the Evergrande shares in their hands almost entirely worthless.
The Final Chapter: Who Will Bear the Trillion-Yuan Debt?
It is worth noting that, according to data cited by mainland Chinese media, some 160,000 retail investors holding Evergrande shares face the prospect of seeing their investments reduced to “zero.”
In addition, Evergrande’s massive debt may ultimately be shouldered by four categories of creditors, including major banks and financial institutions, suppliers, investors in Evergrande’s wealth management products, and Evergrande’s offshore creditors.
Editor: LQQ
