Fallen China Evergrande Boss Pleads Guilty to Fraud in Shenzhen Court

Mainland China has reached a new milestone in its multi-year housing slump, with the former head of the developer which signalled the start of the crisis in 2021 now having pleaded guilty to fraud.

Xu Jiayin, who also uses his Cantonese name, Hui Ka-yan, entered a guilty plea to all charges against him following a two-day trial at the Shenzhen Municipal People’s Procuratorate, according to a report by government news agency Xinhua on Tuesday.

The decision comes nearly five years after Evergrande first defaulted on its debt obligations and three years after the Guangdong-based developer said that mainland authorities had detained Xu, “due to suspicion of illegal crimes.”

Evergrande had stood as China’s largest developer as recently as 2020, which helped to make Xu China’s richest man, and the fall of the entrepreneur and his company has paralleled a decline in the mainland housing market, with sales of new homes last year down by nearly 60 percent compared to 2021, according to China’s National Bureau of Statistics.

Time for Remorse

In his final statement to the court, Xu admitted to illegally taking deposits from the public, fundraising fraud, issuing illegal loans, illicit use of funds, fraudulently issuing securities, illegally disclosing information, embezzlement and corporate bribery, according to the Xinhua statement. 

The 67-year-old native of Henan province, who ranked as China’s richest man with a fortune equivalent to $43 billion in 2017 per the Hurun Report, is said to have expressed remorse to the court.

China’s Supreme People’s Procurate had instructed Guangdong officials in March 2024 to prepare prosecutions against 42 people involved in Evergrande’s collapse, with the judicial body having said in March last year that Xu and 42 others had been formally referred for prosecution. 

Once linked romantically to Chinese actress Fan Bingbing, Xu has been held in an undisclosed location since 2023. The court has yet to pass a judgement on his case, with sentencing expected at a later date.

Evergrande Real Estate Group, which Xu led, was also a defendant in the trial, with official media yet to provide an update on the legal circumstances regarding the company. In May 2023 Evergrande declared to the Hong Kong stock exchange that it had $127 billion in overdue debt, unpaid bills and other delinquent liabilities. 

After being detained in 2023, Xu had been banned from China’s securities markets in early 2024, after regulators concluded that the company’s principal mainland unit had submitted false financial reports for the years of 2019 and 2020. 

The company was said at the time to have overstated its operating income by 78.5 percent in 2020 and to have fraudulently issued RMB 20.8 billion ($3 billion) worth of bonds in 2020 and 2021 on the strength of the falsified results.

After Hong Kong’s high court ordered Evergrande’s offshore listed unit wound up in January 2024, in August that year liquidators said they were seeking to recover $6 billion in dividends and remuneration paid to Xu and other Evergrande executives which had been paid on the basis of misstated financials. 

Fast Growth, Big Fall

Long noted for fast growth and aggressive financial practices, analysts had been pointing to rising default dangers around Evergrande beginning more than a decade ago.

Following China’s imposition of the Three Red Lines policies to rein in real estate borrowing in 2020, a number of smaller developers defaulted on their financial obligations, before Evergrande’s payment failures in late 2021 signalled a broader industry crisis.

With many developers lacking the funds to complete projects and home prices declining, RMB 7.33 trillion in new housing was sold last year, down from RMB 18.1 trillion in 2021, according to the National Bureau of Statistics.