China's property crackdown has started with reports on Monday night that the government has accused broken giant, Evergrande of what amounts to an US$80 billion fraud.
But the regulatory announcement, as revealed in a filing from the company on Monday evening, seems to fall short of revealing if there are any criminal charges involved.
The filing China’s securities regulator which accused Evergrande (which has debts of well over $US300 billion) and its founder Hui Ka Yan of inflating its mainland Chinese revenues by almost US$80 billion over 2019 and 2020.
In Mandarin Hui is know as Xu Jiayin, which is how he was referred to in a story on the official news website, Xinhua. That story reported "The CSRC accused Xu of "making decisions on and organising financial fraud," Evergrande Real Estate Group said in filings to the Shanghai and Shenzhen stock exchanges."
As a result, the China Securities Regulatory Commission plans to impose a Rmb4.2bn ($US580 million) fine on Hengda Real Estate, Evergrande’s mainland business, according to the filing by the company to the Shenzhen and Shanghai stock exchanges that included accusations of false documentation in financial reports.
The filing cited a CSRC preliminary decision as saying Hui, once China’s richest man, would be fined Rmb47m and faced being banned for life from the country’s markets. It accused him of “instructing other personnel” to inflate company metrics.
What this means though for the liquidation of Evergrande is uncertain. In January, a Hong kong court ordered the stricken company be wound up on the application (two years ago) from foreign creditors who are owned a reported US$20 billion or so.
But the liquidation order looks like not being respected by China and the accusation and fines seem to be a government response to the situation.
President Xi’s government finds itself in a weak position – as Monday investment data showed, property fund raising, investment and new work is collapsing, with new house prices slumping sharply.
But it is compromised by the weak position the government -controlled (by the Shenzhen local administration) of China Vanke, now the biggest property group after Evergrande’ collapse and China garden’s slump.
There were reports last week that the government is leaning on Chinese banks and financiers to give financial assistance to Vanke which is being squeezed by the same pressures that saw Evergrande collapse and brought Country Garden to the verge of failure.
The fines also looks light-on compared to the rhetoric last week from China’s housing minister who told a media briefing during the National Party Congress that property developers that are “seriously insolvent… should go bankrupt”.
According to western translations of the weekend comments from Ni Hong, Minister of Housing and Urban-Rural Development, at a press conference, his full quote read"
“For real estate companies that are seriously insolvent and have lost the ability to operate, those that must go bankrupt should go bankrupt, or be restructured, in accordance with the law and market principles,”
“Those who commit acts that harm the interests of the masses will be resolutely investigated and punished in accordance with the law,” he said. “They will be made to pay the due price.”
Evergrande is already bankrupt, according to a Hong Kong court decision which the Chinese government has not yet said whether it supports.
So are the accusations of falsifying accounts and big fines for the company (and the ban and a smaller fine for the founder Hui) paying “the due price”.
According to a report in the Financial Times the filings do not refer to dollar-denominated bonds sold by Evergrande, on which it originally missed payments in September 2021.
"Nearly two years of negotiations between offshore investors and the company failed to produce any viable restructuring plan. Beijing has over that period prioritised the completion of residential projects started by Evergrande and other developers,”the FT report said.
Widespread media reports last September said Hui was placed under “mandatory measures” by Chinese authorities, according to a company filing at the time. In January, Evergrande’s headquarters in the southern city of Guangzhou were surrounded by police and newly-erected fencing.
