Hui Ka Yan jailed: Can China escape Evergrande’s shadow?

(Edited and refined by Candice Chan, with the assistance of AI translation.)

Making his first public appearance in years, former Chinese property tycoon Hui Ka Yan — also known as Xu Jiayin — looks almost unrecognisable from the man many remember.

For many, the defining image of Hui dates back to China’s “Two Sessions” in 2012. Then a member of the Chinese People’s Political Consultative Conference (CPPCC), he was seen jogging outside the Great Hall of the People to break free from a scrum of reporters, his trademark smile on his face and a gleaming gold Hermès belt buckle at his waist.

Hui, then 54, was riding high, much like China Evergrande Group, the property empire he had founded. But in courtroom footage released this week, Hui, now approaching 68, appeared grey-haired and weary — a picture that seemed to mirror the fortunes of China’s property market, which has been mired in a prolonged slump in recent years.

From a high-flyer to a jail

The Shenzhen Intermediate People’s Court in Guangdong on 20 August delivered its first-instance verdict in Hui’s case, sentencing him to life imprisonment and ordering the confiscation of all his personal assets for offences including illegally taking deposits from the public, fundraising fraud, embezzlement and corporate bribery.

China Evergrande Group, which Hui founded, and its property arm Hengda Real Estate Group were fined 8.82 billion RMB (US$1.31 billion) and 7 billion RMB respectively. Another 56 people were sentenced to prison terms ranging from 22 months to 18 years, including Hui’s sons, Xu Tenghe and Xu Zhijian.

With that, the once sensational Evergrande debt crisis has reached its denouement, while Chinese netizens have dubbed the dramatic rise and fall of Hui a “series finale”. Yet the repercussions of the saga for China’s property sector — and indeed its wider economy and society — are far from over.

The Guangzhou Intermediate People’s Court announced on 21 August that it had accepted Hengda Real Estate’s bankruptcy case. Its parent company, China Evergrande Group, was ordered into liquidation by the Hong Kong High Court two years ago. As liquidators continue to trace its assets, details of the lavish lifestyle Hui enjoyed while at the helm of Evergrande have steadily come to light.

A life of luxury

According to reports, Hui at one point owned three large private jets and two yachts. For travel on land, he had two Rolls-Royce Phantom limousines: one bore the Guangdong registration plate “粤A98888”, while the other carried the Hong Kong plate “HK3333”, the same digits as Evergrande’s Hong Kong stock code.

Hui was reportedly just as particular about the finer details of his daily life, eating only melons imported from Japan and drinking only premium French mineral water. When staying at hotels, he had an exacting set of requirements: an entire floor had to be reserved for him, hotel staff had to wear soft-soled shoes so as not to make a sound, and every source of light had to be covered with black tape before he went to bed. His room also had to be fitted with quiet air purifiers and humidifiers; if the hotel did not have them, they would be flown in from Evergrande’s Guangzhou headquarters.

This ostentatious and extravagant lifestyle was sustained by Evergrande’s “three highs” business model: high debt, high leverage and high turnover. During what Chinese netizens now call the “era of economic ascent”, the rapid expansion of Evergrande’s empire propelled Hui to the top of China’s rich list. But after the Covid-19 pandemic dealt a heavy blow to the Chinese economy in 2020, and Beijing imposed the “three red lines” on the property sector that same year, Evergrande’s debt risks continued to mount. Eventually, overwhelmed by liabilities that exceeded its assets, the group came crashing down.

According to media reports, Evergrande’s collapse left more than 1,300 unfinished developments across over 280 small and medium-sized Chinese cities, affecting more than five million homeowners. Despite the authorities’ continuing efforts to “ensure the delivery of homes”, hundreds of thousands of units have still not been completed and handed over. The crisis not only shattered the dreams of home ownership for countless Chinese families, but also sent home-buying sentiment to rock-bottom levels, with little sign of a meaningful recovery. The latest official figures show that in the first seven months of this year, the floor area of new homes sold in China fell by 12.7%, while sales by value dropped 13.2% over the same period. The decline, it seems, has yet to run its course.

The Evergrande model helped fuel the runaway rise in property prices, while the company’s rise and fall became a microcosm of China’s property sector itself — from years of breakneck expansion to a bruising descent to the bottom. The wider property slump has also dealt a severe blow to local governments across China, whose longstanding reliance on land sales for revenue has become increasingly unsustainable.

Four years after China emerged from the pandemic, the strain on local government finances has still not eased. Even Shanghai, with its strong fiscal position, saw its fiscal self-sufficiency rate fall in the first quarter of this year to its lowest level for the same period in a decade. A shortage of funds has forced local governments to cut infrastructure and industrial investment, shrinking the tax base and slowing economic growth, which in turn further reduces government revenue — creating a vicious cycle.

According to the Shenzhen court’s judgment, Hui and Evergrande had begun engaging in large-scale financial fraud as early as 2016, “inflating assets and concealing liabilities”. Evergrande managed to sustain the deception for years, owing in large part to the extensive network of political and business connections Hui had cultivated. These ties allowed him to navigate China’s financial system and official circles, helping him secure the funding and projects he needed.

Bringing wrongdoers to justice

Several senior executives of state-owned banks and local officials who have fallen from grace in recent years, as well as former justice minister Tang Yijun, have reportedly been linked to the Evergrande case, exposing the deep-rooted problem of collusion between political and business interests in China’s property industry.

Another controversy that has dominated headlines this week — a “property-sector drinking party” — suggests that even after China’s property market went from boom to bust, the ties between officials and business interests have yet to be severed. Unwritten practices involving the trading of sex and influence for favours continue to exist, and in Hangzhou, Zhejiang, no less — an economically prosperous city known for promoting “cordial and clean” government-business relations. To borrow a phrase often used by China’s state media, could this not also be seen as part of the “poisonous legacy” of the Hui Ka Yan era?

The Shenzhen Intermediate People’s Court said the Evergrande and Hui cases had “seriously undermined the socialist market economic order, infringed upon public and private property rights and interests, and compromised the integrity of state personnel in the performance of their official duties”. It said the sums involved were exceptionally large, the circumstances particularly egregious, the economic losses exceptionally severe, and the harm to society particularly grave, warranting severe punishment in accordance with the law.

Hui has finally been brought to justice, but many Evergrande investors, homeowners, creditors and suppliers up and down the supply chain have yet to receive the compensation they are owed, while China’s property market continues to struggle along at the bottom of its prolonged slump. It will take much longer for China to work through the bubble left behind by this fallen billionaire and the property boom he came to embody.

This article was first published in Lianhe Zaobao as “许家印“全剧终”后的未完待续”.

Related: Evergrande’s Hui Ka Yan: From rags to empire to prison | PwC’s Evergrande crisis deepens with record Hong Kong settlement and criminal probes