Evergrande’s Struggles Offer a Glimpse of China’s New Financial Future

With access to cheap money and unbridled ambition, Mr. Xu expanded into areas in which Evergrande had no experience or expertise, including bottled water, electric cars, pig farming and professional sports.

Mr. Xu bought two private jets and used them to fly his soccer team, now called the Guangzhou Football Club, to games. His electric vehicle company had a bold vision to become bigger and more powerful than Tesla; so far it has delayed mass production.

When China’s economy began to cool down, the damage caused by Evergrande’s voracious appetite for debt became impossible to ignore. There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. Employees, contractors and home buyers have held protests to demand their money. Many fear they will become unwitting victims in China’s debt-reform campaign.

Yong Jushang, a contractor from Changsha in central China, still hasn’t been paid for the $460,000 of materials and work he provided for an Evergrande project that was completed in May. Desperate not to lose his workers and business partners, he threatened to block the roads around the development earlier this month until the money was paid. “It’s not a small amount for us,” Mr. Yong said. “This could bankrupt us.”

Mr. Yong and others like him are at the heart of regulators’ biggest challenge in dealing with Evergrande. If Beijing tries to make an example out of Evergrande by letting it collapse, the wealth of millions of people could vanish along with Mr. Xu’s empire.

“This is a damned if they do, damned if they don’t situation,” said Michael Pettis, a finance professor at Peking University. “Beijing should have acted 10 years ago. They are stepping in to try to reform property now because prices are way too high. The longer they wait, the more costly fixing the model becomes.”

Article source: https://www.nytimes.com/2021/09/28/business/china-evergrande-economy.html