Xu Jiayin: The “debt king” rocking markets with Evergrande
In 2017, Xu Jiayin, or Hui Ka Yan -the Cantonese version of his name-, came to hold nothing more and nothing less than the title of the richest man in China. The 62-year-old self-made billionaire chairs the Evergrande Group, one of the fastest-growing real estate conglomerates in Asia. However, the growth of his empire hid an abyss of debts, which ended up exploding in recent weeks: his liabilities exceed US$ 300 billion, an amount that is equivalent to 2% of the country's GDP and the entire GDP of Chile. , worrying the financial world due to fears of a bankruptcy with a domino effect.
According to the Forbes ranking, Xu has a net worth that has been reduced in recent years, but is still estimated at US $ 11 billion. In the Bloomberg Billionaires Index he does not exceed US $ 7 billion . Either number, however, is a far cry from his humble origins in Henan, China. It was born in October 1958, just when the government of Mao Zedong, of the Communist Party of China (PCCh), promoted the Great Leap Forward, a series of social and economic policies that sought to industrialize the country through an increase in the workforce, mainly agriculture, which ended up starving more than 40 million people.
The book The Great Famine in Mao's China, by Frank Dikötter, which compiles a series of Chinese archives, reveals that life expectancy, which was 50 years in 1958, fell below 30 in 1960. The crisis even led to cases of cannibalism in the face of the dramatic daily life faced by Chinese citizens.
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Precisely, Xu's mother died of sepsis when the minor was just eight months old , so his paternal grandmother, who sold homemade vinegar to survive, took over the upbringing because his father, a former soldier who was deployed in the war between China and Japan, he began to work in a warehouse. In interviews, Xu has recalled over the years that during his childhood his greatest dream was to leave the countryside to move to the city, especially given the shortages he lived in at home, when his bedding was completely mended for reuse.
“I know very well about poverty. At school all he ate was sweet potatoes and steamed bread . I really hoped I could get out of town and eat better, "said the businessman during a speech in 2018.
In the midst of the chaotic life that was developing in China, a second crisis hit the life of the real estate tycoon: the Cultural Revolution (1966-1976), which forced him to freeze his studies after leaving school and in 1978, when they reopened universities and entrance exams were reactivated, he returned to the classroom to study Metallurgy at the now Wuhan University of Science and Technology .
Before imagining a life of luxury marked by his fanaticism for yachts and big designer brands, the young Xu had various jobs, including at a cement company and, for years, as a technician at a steel factory , after graduating in 1982. He was the first in his family to achieve this achievement, but it would only be the first step to an exceptional career.
Part of Evergrande's success is due to its development in Shenzhen , the city where the businessman resides and which in 1979 had become China's first Special Economic Zone (SEZ) , becoming the technological capital of the Asian giant and earning the nickname of the “Chinese Silicon Valley”.
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The break for Xu came in 1996, when he officially founded the Evergrande group. Under the initial strategy of "acquiring low-priced properties in small markets," the tycoon came to lead massive real estate projects , emphasizing one of the greatest needs in the most populous country in the world: owning a home. His progress was such that in 2008 the firm reached the Hong Kong Stock Exchange and less than 10 years later it was the richest in the entire country.
“Without the resumption of the national university entrance exam, I would still be in the field. Without a state scholarship of 14 yuan (US$2.16) he could not have gone to university. Without the reform and opening of the country, Evergrande would not be what it is today. Everything in Evergrande is given by the Party, the State and society”, Xu defended in a speech.
Being the chairman of the board, he decided that his first big project would be Jinbi Garden, a hotel in Heyuan. In addition, at the height of his conglomerate, Xu gave himself one of his greatest pleasures: being the majority owner of the Guangzhou Evergrande football club, which has been eight times champion of the Chinese league , even reaching collaboration agreements with Real Madrid. In the tournament of the Asian giant he shares space with the owner of the giant Alibaba Group, Jack Ma.
The fledgling Evergrande ended up conquering the Chinese real estate market and had more than a thousand projects in more than 280 Chinese cities, which led it to expand into other areas, with businesses in tourism and electric vehicles . According to the Spanish newspaper El País, Xu has managed his political connections and along the way he benefited from the close ties with the former vice president of China, Zheng Qinghong, while in 2018 he was one of the attendees of the CCP's annual congress, which gave him green light to President Xi Jinping to eliminate the limits of his term and opened the doors to him to stay in power.
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Hermès belt, yachts and private jet
A long list of nicknames marks Xu's life. One of them earned it for his eccentric life, being called "belt brother" . The origin of the name is in an annual parliamentary session of China in 2012, to which he attended with a black suit and a gold belt from the French luxury brand Hermès. "The most expensive belt for the largest communist meeting in the world," noted the BBC.
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Among his luxuries is a yacht valued at US$60 million and an Airbus A219 private jet with his company's logo, whose market value is US$90 million . In 2015, the billionaire bought a $40 million mansion in Australia, but had to sell the property within 90 days.
The tycoon is married to Ding Yumei, 64, a woman from a wealthy family who has supported her husband's career for the past 35 years. They both met in college. This week, and in a gesture of support, Ding Yumei invested US$ 3 million in shares of Evergrande, seeking to put a chill on the turmoil in the market.
Known for a low-key life, the couple had two sons, Xu Xihao, about whom little information has been revealed, and Xu Zhijian, 32, who graduated from Tsinghua University, is a vice president of Evergrande and a professor in the Department of Management. of Business from Nanjing University.
For his financial achievements, Xu received an honorary doctorate from the University of West Alabama , in the United States.
Financial problems
The debts accumulated by Evergrande were no secret to any Chinese citizen. Such was the impact that Xu was called by the Chinese press as the "king of debts" or the "most indebted real estate company in the world", facing a critical situation that was made worse when last year the Xi government announced a series of measures to control the “indebtedness of real estate companies”.
The company's strategy was to request loans to finance future projects, even to explore other businesses, such as the creation of water bottlers and amusement parks. Income from the sale of properties has been falling, especially during the pandemic, so the group does not have cash to pay suppliers, which has paralyzed hundreds of works and damaged its main source of fundraising.
Covid-19, which initially shocked China and then the entire world, has also hit Evergrande. The conglomerate's shares lost at least 40% of their value last year, as it struggled with mounting debt and plummeting profits due to the pandemic. After that, Xu promised his workers to prioritize sales and reduce the reserve of land for future work .
Since then, Xu's company has tried to generate liquidity with a big sale of discount and bonus properties , as well as the sale of businesses that did not generate large returns.
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According to the BBC, the disclosure of the news of the financial situation of Evergrande generated several mobilizations because more than a million people are waiting to receive their new homes for which they have paid millionaire deposits, which today are in danger with the fall of 80 % of the market value of the conglomerate since the beginning of the year .
Now, the specter of a bankruptcy would not only imply a heavy defeat for Xu, but also because more than 200,000 workers and more than 3.8 million annual indirect jobs would remain up in the air. The real estate sector, one of the pillars of Chinese economic growth in recent decades, represents, according to the country's National Statistics Office, 7.5% of the Asian giant's GDP .
Nothing could fix the bonds continue to lose value and creditors demand their money back. In this economic scenario, Evergrande fulfilled one of its greatest fears by reporting that it does not have the guarantees to meet its financial obligations, so some projects will be paralyzed until further notice, generating a collapse that is difficult to overcome.
The international tension that Xu left behind was such that many investors fear a repeat of what happened in 2008, when the collapse of the investment bank Lehman Brothers triggered the last great financial crisis . The comparison, however, has been dismissed by many economists who see several differences with that case. This week, however, Evergrande defaulted on $84 million in interest payments on bonds due Sept. 23, causing its shares to plunge again on Friday.
The big question so far is whether Xi will back Evergrande and try to bail it out . Or definitely drop it. To Evergrande and its owner: Xu Jiayin.
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