In its latest financial stability report, the United States Federal Reserve warned "stresses in China's real estate sector could strain the Chinese financial system, with possible spillovers to the United States".
Enter the company's founder, Xu Jiayin. Bloomberg reported late last month, citing anonymous sources, Chinese authorities have told Xu to use his personal wealth to pay the company's debts. "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."Evergrande's debt saga is a dramatic reversal for Xu, whose rise to success mirrors China's broader economic ascent. He grew up impoverished in rural China.
Property supercharged China's economy, and has ballooned to account for as much as 30 per cent of the country's GDP. Cheap money also fuelled developers to keep building: Evergrande, for example, expanded into bottled water, electric cars — even pig farming. 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.
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. But real estate poses its own, enormous economic and social threat: nearly three-quarters of household wealth in China is tied up in property, and the Evergrande crisis has led to protests from employees, contractors and homebuyers.