When troubled Chinese real estate giant Evergrande died of a lack of cash earlier this year, it turned to its own strong-armed employees: Those who wanted to keep their bonuses had to give Evergrande a short-term loan.
Some workers knocked on the door of their friends and family to lend money to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which were packaged as high-interest investments.
Now, hundreds of workers have joined panicked home buyers to demand their money back from Evergrande, gathering outside the company’s offices across China last week to protest.
Once China’s most prolific real estate developer, Evergrande has become the country’s most indebted company. It owes money to lenders, suppliers and foreign investors. It owes unfinished apartments to homebuyers and has accumulated more than $300 billion in unpaid bills. Evergrande faces lawsuits from creditors and has seen its shares lose more than 80 percent of their value this year.
Regulators fear the collapse of a company the size of Evergrande would shock the entire Chinese financial system. But so far Beijing has not intervened with a bailout, promising to teach the debt-ridden corporate giants a lesson.
The angry protests led by homebuyers — and now the company’s own employees — could change that calculus.
Evergrande is estimated to have buyers for nearly 1.6 million apartments and may owe tens of thousands of its employees. As Beijing remains relatively quiet about the company’s future, those who owe money say they are getting impatient.
“There’s not much time left for us,” said Jin Cheng, a 28-year-old worker in the eastern city of Hefei, who said he had put $62,000 of his own money into Evergrande Wealth, the company’s investment arm, upon request. . from senior management.
As rumors circulated on the Chinese internet that Evergrande might go bankrupt this month, Mr. Jin and some of his colleagues gathered in front of provincial government offices to pressure authorities to intervene.
In the southern city of Shenzhen, homebuyers and workers burst into the lobby of Evergrande’s headquarters last week, clamoring for their money back. “Evergrande, give back my money that I earned with blood and sweat!” some could be heard screaming in video footage.
Mr. Jin said employees of Fangchebao, Evergrande’s online real estate and auto sales platform, were told that each department should invest in Evergrande Wealth on a monthly basis.
Evergrande did not respond to a request for comment, but the company recently warned it was under “enormous” financial pressure, saying it had hired restructuring experts to help shape its future.
Things weren’t always like this.
For more than two decades, Evergrande was China’s largest developer, monetizing a real estate boom on a scale the world had never seen before. With each success, Evergrande expanded into new areas: bottled water, professional sports, electric vehicles.
Banks and investors happily threw in money, betting on China’s growing middle class and its hunger for homes and other property. More recently, real estate has come under scrutiny from Chinese regulators seeking to end the go-go years of the boom and have forced the industry to pay off debt.
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The idea was to reduce the exposure of Chinese banks to the real estate sector. But in the process, regulators took away the money developers like Evergrande needed to build homes, leaving families without the homes they’d already paid for.
“The Chinese financial system is very complex and when you see these kinds of cracks, you realize the impact it could have on society,” said Jennifer James, investment manager at Janus Henderson Investors. “If Evergrande disappeared tomorrow, it could be a social system problem.”
Ms. James and other investors said they only learned of Evergrande’s wealth management strategy involving its employees this month, when the company revealed that it owed $145 million in repayments.
Evergrande has tried to sell parts of its vast empire to raise new funds, but said last week it was “uncertain whether the group will be able to complete such a sale”. It accused the news media of causing panic among homebuyers with negative coverage.
But Evergrande’s funding channels began to dry up well before last week. According to employee interviews, state media reports and company documents seen by The New York Times, the company began forcing employees to help bail it out as early as April, when it began making short-term loans.
About 70 to 80 percent of Evergrande employees across China were asked to set aside money that would then be used to fund Evergrande’s operations, Liu Yunting, a consultant for Evergrande Wealth, recently told Anhui Online Broadcasting Corporation, a state-owned newsgroup.
A version of that interview was taken offline on Friday. Anhui Online Broadcasting did not respond to a request for comment.
The scope of the campaign and how much money it would have raised were unclear. Employees were told that they each had to invest a certain amount of money in Evergrande Wealth products, and that if they didn’t, their pay performance and bonuses would be locked in, employees told Anhui.
The company’s management said the investments were part of “supply chain financing” and that Evergrande could make payments to its suppliers, Mr. Liu in his interview with Anhui. “Because we had to meet a quota for our employees, we asked our friends and family to raise money,” he said.
Mr Liu said his parents and in-laws had invested $200,000 and that he put about $75,000 of his own money into Evergrande Wealth.
Even before last week’s protests, Evergrande was on Beijing’s bad side. Late last month, executives were called to a meeting with regulators. Officials from China’s top banking and insurance watchdogs told executives to resolve their towering debts to maintain the stability of China’s financial market.
The main concern for authorities is Evergrande’s unfinished apartments. The company has nearly 800 developments in progress in more than 200 cities across China.
Evergrande, which often pre-sells apartments to raise funds before completion, may have yet to deliver as many as 1.6 million homes to homebuyers, Barclays estimates.
Earlier this month, under increased scrutiny, Evergrande gathered its top executives and asked them to: public sign what it called a “military order” – a promise to complete unfinished real estate developments.
Wesley Zhang and his family are among the hundreds of thousands of families still waiting for their apartment, and they hope the company can deliver. Mr. Zhang, 33, joined other homebuyers who protested in Hefei last week after learning Evergrande also owed money to its employees.
“Everyone is concerned, we are a bit like ants on a hot pan, we have no idea what to do,” said Mr. Zhang, using a Chinese phrase to describe the distress of seeing a $124,000 investment disappear. He said he hoped the protests would spur the government into action before it is too late.
“We hope it will get the central government to pay enough attention,” Mr Zhang said. “Then someone would come to intervene.”