The company has roughly $8 billion worth of interest payments or principal on offshore bonds that are coming due over the next year, according to analysts from Moody’s and S&P Global Ratings.
The company did not respond at the time to a CNN Business request for comment about that report, and Evergrande has largely stayed silent on its debt payments, even as bills have come due. But suggestions that Xu’s debt repayment strategy may be getting personal aren’t going away.
The government is “clearly setting the example of excessive risk taking, which is something the Chinese government is very keen on eliminating” said Peter Cai, a China analyst from the Lowy Institute, an Australia-based think tank. “By making an example of these billionaires who have taken way too much debt for their companies, I think it’s a way to demonstrate the government’s resolve.”
A dramatic rise, then a sudden fall
The company rode the boom of home buyers rushing to urban cities, as hundreds of millions of people across China were lifted out of poverty — a change that created metropolises from villages. Evergrande alone built more than 1,000 developments in hundreds of cities and claims it creates more than 3.8 million jobs a year.
Property supercharged China’s economy, and has ballooned to account for as much as 30% of China’s GDP. Cheap money also fueled developers to keep building: Evergrande, for example, expanded into bottled water, electric cars — even pig farming.
By 2017, Xu became Asia’s richest person, and was famous for his extravagant lifestyle and taste for luxury.
During one of China’s annual legislative conferences, Xu went viral online for wearing a black suit with a flashy Hermès gold belt, earning himself the moniker “belt brother.” And according to the book “Red Roulette” by Chinese businessman Desmond Shum, Xu once ordered his private jet to fly empty to Paris, while he played cards with a friend in another jet headed for the same place.
While Xu was an archetype of China’s crazy rich, he also successfully aligned himself with Beijing and the ruling Chinese Communist Party — at least for a while. He was known as a philanthropist and is a member of China’s Political Consultative Committee, which advises the government on policy.
“All I have and all that Evergrande Group has achieved were endowed by the Party, the state and the whole society,” Xu said in a 2018 speech.
But that strategy failed last year, when Beijing started to crack down on unrestrained borrowing in real estate — an ongoing issue in China, where the housing market has been cooling for some time. In August 2020, the Chinese government unveiled a “three red lines” policy to limit debt from developers, which analysts say has contributed to the liquidity crisis now unfolding at Evergrande and other developers.
“There’s been a decision at the very top, that this buildup of reckless credit expansion is becoming a danger to China and presumably a threat to the Party rule,” said Leland Miller, the CEO of China Beige Book.
“I think it’s almost certain that the government is going to find way to bail it out while making it look as essentially the bailout was done so by the private sector, even though the government’s hand was behind it,” Mitter said.
Pushing Xu to pay the debts himself is “of much greater symbolic value, than offering actual ability to make a dent in the amount of money owed,” said Cai of the Lowy Institute.
However China attempts to resolve the issue, the government’s efforts to more tightly regulate the real estate industry may be creating new risks, even as it eliminates old ones.
“For decades, we’ve been used to a high growth model where property pumps enormous amounts of credit into the economy … and when growth needs a little pick me up, then more building gets done,” Miller said. “We are going from an era of high to medium growth to an era of low growth in China.”
Analysis: Evergrande’s billionaire founder has been bailing out the business. That can’t continue