Struggling Chinese property giant Evergrande and its founder, Hui Ka Yan, are facing allegations of inflating revenues by $78bn in the two years leading up to the company’s default on its debt. The country’s financial markets regulator has fined Evergrande’s mainland business, Hengda Real Estate, $583.5m, with Mr. Hui potentially facing a lifetime ban from China’s financial markets. The blame for the alleged revenue inflation has been placed on Mr. Hui, once China’s richest man, for supposedly instructing staff to falsely inflate Hengda’s annual results in 2019 and 2020.
The China Securities Regulatory Commission (CSRC) is cracking down on securities fraud and aiming to protect small investors, with Evergrande serving as a prominent example of China’s real estate crisis. Efforts are being made to address Evergrande’s massive debt, with liquidators appointed to assess the company’s financial standing and identify potential restructuring strategies. This may involve seizing and selling assets to repay outstanding debts, although the Chinese government may be hesitant to halt property developments to prevent delays for homebuyers.
The troubles in China’s property market, which represents a significant portion of the country’s economy, have intensified since 2021 due to measures restricting borrowing for major developers. The industry has witnessed multiple defaults on debts, and recent data reveals a decline in property investment and new construction starts. These challenges are indicative of broader economic shifts in China’s real estate sector and highlight the potential impact on the country’s overall financial landscape.