Billionaire Shenzhen Real Estate Developer Said Detained in Graft Probe

Chinese property billionaire, Li Hua, is said to have been detained by authorities to assist in an investigation of a top Shenzhen official, according to local media reports.

Li, founder and chairman of Shenzhen-based Excellence Real Estate Group, was reportedly placed under administrative detention, popularly known as “black jail”  in connection with a probe of disgraced Shenzhen deputy party chief, Li Huanan, who was placed under investigation by the Communist Party’s top graft buster in October, reported Caixin.

Li, ranked 67^th on the Forbes China Rich list with personal assets of RMB 24.8 billion ($3.69 billion), started Excellence Real Estate in 1996. The developer’s case resurrects the spectre of political risks for mainland developers some three years after another Shenzhen property firm, Kaisa Group, was nearly driven into bankruptcy when its chairman was detained under similar circumstances in late 2014.

Li Huanan and the Excellence Adventure

Little detail has been made public officially so far on the Li Huanan probe other than a notice dated October 9, 2018 on the website of the State Supervisory Committee of the Central Discipline Commission that stated that the former senior city official was suspected of severe violations of party discipline as well as of the country’s laws, and was currently under disciplinary review and supervisory investigation.

Local Chinese media reported at the time that Li’s fall from grace had to do with offering favors to a developer to assist with land acquisitions in Shenzhen.

In November of last year, news reports in the South China Morning Post cited unnamed sources as indicating that Li Huanan, no relation to Li Hua, had offered more than $70 million — or half of his alleged illicit fortune of RMB 1 billion — to any underground banker that could help him to transfer his cash overseas prior to his eventual detention.

A Record of Winning Land Tenders

Li Hua’s Excellence had quickly risen to prominence as one of Shenzhen’s biggest landlords over the past five years, as the Guangdong commercial hub invested billions in building a financial centre across the border from Hong Kong.

In 2014, the little-known developer surprised the market by splurging RMB 15.7 billion on three commercial plots in or near Shenzhen’s Qianhai economic zone near Hong Kong, according to Reuters. The acquisition had thrown a spotlight on the company at a time when credit in China was tightening amidst a market downturn.

That set of 2014 deals came after Excellence outbid some of the mainland’s largest developers, including China Vanke and China Resources Land in July 2013 to win the first two land auctions in Qianhai for a record-breaking total of RMB 12.4 billion. Then in March 2014, the company, which ranked 46^th among all Chinese developers by sales revenue in 2013, beat such rivals as Shanghai’s Greenland Group and Shenzhen Overseas Chinese Town to scoop up another piece of land, about 500 meters from the economic zone, for RMB 3.3 billion.

A Reuters archive suggested that Excellence’s spending at the time was equal to 134 percent of its 2013 annual sales revenue, while Chinese developers spent on average about 35 percent of their annual sales revenues on land each year. The company’s buying frenzy and in particular its source of funding attracted the attention of local media and industry watchers even back then.

Shenzhen Developers Keep Disappearing

Li’s detention echoed the story of another Shenzhen-based developer, Kaisa Group Holdings, whose chairman Kwok Yingshing was reportedly detained and resigned from his posts with the company after another Shenzhen official came under investigation in 2014.

Kaisa, which was rumoured to have had connections to fallen former Politiburo member Zhou Yongkang, had project sales frozen in Shenzhen for several months. The company filed for bankruptcy in the US in 2016 before eventually rejoining international bond markets last year.

In September last year, Zheng Kanghao, chairman of Shenzhen-based developer, Wongtee International, was also detained by authorities in relation to the Li Huanan probe, although Zheng was later released in November.

Excellence in Government Contacts

Li Hua founded Excellence in 1996 with his older brother Li Xiaoping, a member of Guangdong province’s political advisory body. Chinese president Xi Jinping’s brother-in-law, Deng Jiagui, shared director posts with the pair on a company called Excellence Effort Property Development Ltd until it was dissolved in 2012, the same year that Xi ascended to China’s top political position, according to Reuters.

Li was most recently known for brokering a settlement with a rape case filed against Richard Liu, chairman of China’s ecommerce giant JD.com’s, in Minneapolis, Minnesota. US prosecutors later dropped charges against Liu, citing a lack of evidence.

In 2018, Excellence announced its goal of achieving RMB 100 billion in sales within three years time. Li said at the company’s new year event this month that Excellence has completed a new strategic share placement and has expanded its business to 100 projects in 36 Chinese cities.

Real estate information provider CRIC ranked Excellence, with its RMB 55.3 billion in 2018 contracted sales as 48th among China’s top 200 Chinese developers. The company recorded sales RMB 32.5 billion and RMB 45.6 billion respectively for 2016 and 2017, according to the real estate data provider.