"I firmly believe that with the efforts and hard work of all of you, Evergrande will emerge from its darkest moment," wrote Xu Jiayin, chairman of the real estate giant, in a letter to his employees this week.
Taken from BBC News Mundo
Xu's optimism in the letter is far removed from the view held by international creditors and analysts regarding the crisis facing the world's most indebted real estate company.
A giant on the verge of collapse that has shaken stock markets and raised alarms about a possible "contagion effect" of the crisis to the rest of the Chinese economy and the international financial system.
Evergrande, which manages 1,300 real estate developments in 280 cities across the country, has its creditors—both inside and outside China—its suppliers, its employees, and the thousands of families who invested their savings in buying homes and now fear being ruined, on edge.
With an estimated debt of around US$300 billion, equivalent to 2% of the country's GDP, investors are wondering whether Xi Jinping's government will implement a bailout, let it fail, or devise some formula for some of those affected to receive part of the money invested in the firm.
The most dramatic have described the firm's eventual collapse as "China's Lehman Brothers moment ," referring to the dramatic fall of the US bank that triggered the 2008 financial crisis, although the consensus among many experts is that an "orderly" bankruptcy would occur.
"Chinese government officials have been busy intervening and actively working on a feasible restructuring plan," Zhiwu Chen, director of the Asia Global Institute (AGI) and senior lecturer at the University of Hong Kong, tells BBC Mundo.
The visible face of the debacle is Xu Jiayin, also known as Hui Ka Yan in Cantonese.
What is the story of the president of Evergrande and what does he represent in the context of the expansion of the Chinese economy and the debt boom?
Xu Jiayin, "the king of debt"
The so-called "debt king," who became one of the richest men in China, fits perfectly into one of those government-promoted stories of personal triumph, very similar to that of other billionaires such as, for example, Alibaba founder Jack Ma (who suddenly fell from grace at the end of last year).
And Xu's loyalty to the government has been unwavering. Before reaching his current critical situation, the billionaire used to attribute his success to education and the Communist Party.
"Without the resumption of the national college entrance exam, I would still be in the countryside. Without a state scholarship of 14 yuan, I wouldn't be able to go to university. Without the reform and opening up of the country, Evergrande wouldn't be what it is today," he said in a speech reported by Agence France - Presse .
"Everything about Evergrande is dictated by the Party, the State, and society.".
This 62-year-old man has been described by local media as a multimillionaire with a taste for luxury brands, yachts, expensive clothes , and an excellent relationship with the Communist Party that would have allowed him to rise during the real estate boom.
His ties to the political and economic elite, which helped him build his empire, are now hurting him in the context of the restrictions that the Chinese government has imposed on large companies and the gigantic fortunes of billionaires.
"While the Communist Party controls everything in China as required by the Constitution, trade agreements at a practical level are made based on connections or relationships," explains Zhiwu Chen.
"Even strict regulations and rules can be circumvented if you have the right connections. That's why Evergrande was able to accumulate such enormous debt, despite all the strict regulations," the researcher points out.
From rural poverty to becoming a real estate tycoon
Born into rural poverty and raised to become a real estate tycoon, Xu's fortune grew over the past two decades as rapidly as China's economic expansion.
Originally from a village in the central province of Henan, his father was a warehouse worker and a veteran of the Chinese Civil War. His mother died when he was eight months old.
Raised by his grandparents, Xu said in a 2017 speech that during his childhood he ate mainly sweet potato and bread.
"At that time, my greatest desire was to leave the countryside , find a job, and be able to eat better," the businessman said on that occasion.
In his youth, Xu worked at a steel company in southern China where he rose through the ranks and eventually became the plant's general manager.
In 1992 he quit his job and moved to Shenzhen - the fishing village next to Hong Kong that ended up becoming the so-called "Chinese Silicon Valley" - to try his luck as a salesman in a steel conglomerate and gradually developed his career in a state-owned company.
It was the same year that Deng Xiaoping (promoter of the pro-market reforms that earned him the nickname "Architect of Modern China") visited Shenzhen, boosting the entrepreneurial spirit in what would become the country's first special economic zone city.
That's how, in 1996, Xu founded Evergrande in Shenzhen , a company dedicated to the mass construction of housing.
From then on, the growth of his real estate company seemed unstoppable.
Such was the success that in 2008, the firm went public on the Hong Kong Stock Exchange and in 2017 the real estate tycoon became the richest man in China, according to Forbes.
Along the way, Xu expanded his investments into a wide variety of sectors. He bought a football team (Guangzhou Evergrande) and made investments in electric vehicles, tourism, bottled water, and other industries.
Despite having amassed a fortune exceeding US$43 billion, his current wealth is around US$10.7 billion according to Forbes estimates, although according to the Bloomberg , it does not exceed US$7.3 billion (with figures updated to September 22).
Just as the country went from being a rural and impoverished society to becoming the gigantic economy it is today, Xu went from humble origins to a position of success that allowed him to reach the top, before the insolvency of his firm became public.
"Crazy nouveau riche"
According to Chang Che, Business Editor at SupChina, a media outlet specializing in analyzing events in China for the West, the businessman led a rather extravagant lifestyle.
At the 2012 annual parliamentary session in China, known as the "two sessions," Che writes, the businessman "wore a black suit with a belt with gold buckles from the French luxury brand Hermès, the most expensive belt for the world's largest communist gathering.".
That appearance earned him the nickname "belt brother".
At that time, Che explains, the tycoon "was the model of China's crazy new rich," who flew in their private jets or bought yachts valued at millions of dollars.
"If Xu's rise from rural poverty to real estate tycoon owes much to the Communist Party, then his downfall is rooted in the Party's radical change: a rebuke to the capitalists, the wealthy class, and the Party officials who helped developers prosper," he notes in his analysis.
And "if the anti-corruption campaign attacked the unwritten rules of Chinese real estate, Xi Jinping's nascent ' common prosperity ' aims to transform the country's financial system, which facilitated the rise of real estate tycoons like Xu," he points out.
From his point of view, the businessman represents the excesses of an economic system that "worked for the political and economic elites in the past," but which has changed under Xi's plans.
Evergrande's debts were no secret
The giant's debts were no secret, although the magnitude they reached in recent months highlighted the real possibility of its collapse.
Several years ago, the company was known for issuing extremely profitable bonds with which it financed its explosive growth.
Back in 2017, it had already earned the nickname of being the "most indebted real estate company in the world" in investor circles.
Despite the high level of risk, the enormous debt was not considered at the time a red flag that could jeopardize its commercial viability.
However, things took a turn when, in the middle of last year, Xi Jinping's government announced measures to control the indebtedness of real estate companies .
Evergrande responded by arguing that it had liquidity problems and, therefore, might have difficulty meeting its commitments.
The frantic race to reduce debt
Thus, the real estate company's serious solvency problems were publicly exposed, and a frantic race to reduce its debt began.
The firm devised a plan to cut its debt in half by 2023. It put properties up for sale at steep discounts and divested parts of its automotive and technology businesses.
The plan did not yield the expected results and the company continued to fall into an ever-deepening hole.
Its bonds lost value, credit ratings continued to sink, and stocks plummeted.
Like a snowball, the bad news affected investor expectations, the risk rating fell lower and lower, and more and more creditors appeared demanding their money.
Thus, in August of this year, the company reported a dramatic decrease in its net profits and warned that some of its real estate projects could be at risk.
In recent weeks the firm has warned that there are no guarantees that it will be able to meet all of its financial obligations in its current situation.
"A campaign to reduce financial risks"
Trey McArver, co-founder of the analysis firm Trivium China and editor of China Politics Weekly, argues that Xu Jiayin is a symbol of the new restrictions that the Chinese government has imposed on corporate giants in various economic sectors.
However, according to the analyst, the Evergrande crisis "was not caused by the 'common prosperity' initiative and, fundamentally, is not really related to it.".
The potential collapse of the real estate company "is really the result of the broader financial risk reduction campaign
Regulators, he argues, may even end up "framing the issue as one of common prosperity," but in practice, the backdrop is to mitigate risks.
McArver argues that, in this context, there may be "more pressure to sanction any shady dealings by Xu and other Evergrande executives.".
For now, while the government determines who will "pay" for the costs of the Evergrande crisis, he adds, it is more likely "that it will be wealthy shareholders ," rather than the people who bought homes.
