China Jails Evergrande Boss for Life | Verdict Puts China's Economic Troubles Back in Spotlight

(CNA) China sentenced the founder of embattled property giant Evergrande to life in prison and fined the group more than US$2 billion on Thursday (Aug 20) for offences including fraud, five years after a high-profile default.

Evergrande Group was once the face of Chinese real estate, surfing a decades-long property boom as it peddled home-ownership dreams.

But its access to credit dramatically narrowed when the government introduced curbs on excessive borrowing and speculation.

The company defaulted in 2021 after struggling to repay creditors.

On Thursday, a court in southern China fined the firm and its real estate arm a total of 15.82 billion yuan (US$2.4 billion).

It issued a life sentence against founder Xu Jiayin, also known as Hui Ka Yan in Cantonese, for crimes including "large-scale financial fraud", the Shenzhen Intermediate People's Court in Guangdong province said in a post on its WeChat account.

"Xu Jiayin was sentenced for multiple crimes and fined, received a life sentence, with political rights revoked for life and all his personal property confiscated," it said.

Between 2016 and 2021, Evergrande and Xu as its boss "violated national laws by engaging in continuous, large-scale financial fraud and other means to inflate assets and conceal liabilities", the court said.

It added that the parties "gained control of financial institutions" through bribery, without naming the institutions.

Xu pleaded guilty in April to charges that also included embezzlement and bribery, the court said at the time.

The verdict caps 67-year-old Xu's spectacular fall from grace.

He was once one of China's richest billionaires and a member of the Communist Party's top political advisory body.

On Thursday, a before-and-after photomontage was being widely shared on social media - the older image, taken years ago, shows Xu beaming as he was chased by reporters, sporting jet-black hair and wearing a gold Hermes belt.

It was contrasted with a picture released by the court on Thursday, in which a worn, white-haired Xu stood unsmiling, flanked by two police officers as he faced a panel of judges.

Xu and Evergrande's actions "seriously disrupted the socialist market economic order ... and undermined the integrity of official conduct by state personnel", the court said.

"The circumstances were particularly egregious, causing particularly serious economic losses and causing particularly serious social harm," it added.

The court said some lawmakers and members of the political advisory body, as well as relatives of the defendants, attended the verdict.

Observers assessing the health of the world's second-largest economy have been closely following Evergrande's saga and similar issues faced by other property giants including Country Garden and Vanke.

New-home prices in China have been contracting for three years.

Five other senior executives of Evergrande Group were also sentenced Thursday to prison terms ranging from six to 18 years for crimes including fraud, the Shenzhen court said.

A total of 56 people were given jail sentences - including Xu's two sons - with the shortest term just one year and 10 months, China's state news agency Xinhua reported.

The court also ordered that remaining shortfalls from illegal gains be returned.

WHY DID EVERGRANDE COLLAPSE?

Evergrande was once China's leading property developer, propelled by decades of rapid urbanisation and rising living standards across the country.

Listed in Hong Kong in 2009, the firm surged to a peak market value of more than US$50 billion under the stewardship of Xu, also known as Hui Ka Yan.

But fortunes reversed in 2020, when new regulations from Beijing seeking to limit excessive borrowing in the real estate sector complicated Evergrande's ability to make payments.

Subsequent years saw a drawn-out struggle across the industry to complete construction projects as shares plunged and cash flows dried up.

Evergrande's 2021 default and the 2024 liquidation order by a Hong Kong court have become emblematic of the broader downturn in China's once-mighty property sector.

In August last year, Evergrande shares were delisted from the Hong Kong Stock Exchange.

Xu pleaded guilty to charges of fraud and bribery in April during a public hearing at which he stood accused of "illegally absorbing public deposits, fundraising fraud, illegally issuing loans (and) illegally using funds", among other crimes, a court statement said at the time.

WHAT IS THE IMPACT ON CHINA'S ECONOMY?

The protracted crisis in China's real estate market - long a key driver of national growth - has heavily impacted the country's economy.

"Evergrande helped make the problem more structural ... and it showed the weakness of the system," Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis, told AFP.

The debt struggles of Evergrande and industry peers, including Country Garden, Vanke and Kaisa, have had a severe impact on consumer confidence, dissuading many would-be homebuyers from making purchases.

Complicating matters further, the slump in sentiment comes just as many economists argue that China must shift towards a growth model powered more by domestic consumption than investment in real estate and infrastructure.

Garcia-Herrero said there are "so many reasons" for a lack of demand in the housing sector, including stagnant disposable income for households and a shrinking population.

In the latest sign of pressures, new-home prices dropped at a faster pace in July than the previous month, official data released this week showed.