China Evergrande Group wiped out international investors, roiled financial markets and left thousands of suppliers in the lurch. Yet it was the developer’s failure to pay households who invested in its wealth management products that may have provided the last straw for Chinese authorities.
Almost two years after Evergrande defaulted on its debt, its billionaire founder and chairman, Hui Ka Yan, is under police control on suspicion of committing unspecified crimes. Staff at the group’s wealth management business have been detained. Hui’s son Peter Xu, who once ran the firm’s wealth unit, was also taken into custody, local media reported.
“As the property sector is unlikely to provide an engine of growth, a prominent property tycoon makes a politically effective target,” said Rana Mitter, a professor of Chinese politics at Oxford University. “The Communist Party wants to demonstrate that what it views as anti-social business behavior will be penalized.”
To her bigger surprise, police and related authorities in the southern city of Shenzhen said they will work overtime through an eight-day national holiday, which starts Friday, to deal with leads from tens of thousands of retail investors. She quickly spread the word. When the latest installment was due on Aug. 31, nothing appeared in consumers’ accounts. That day, the money management arm said it couldn’t make payments due to a liquidity crunch and setbacks in disposing of assets.
That’s also when a raft of headlines flashed on actions taken against Evergrande executives. On Sept. 18, police said they recently detained some staff at its wealth management unit. A week later, Caixin reported that former Chief Executive Officer Xia Haijun and former Chief Financial Officer Pan Darong, who both oversaw financing businesses, were also being held. On Sept. 28, Evergrande acknowledged that Hui is suspected of crimes.
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