Punishing Evergrande property tycoon will not solve
Photo: Collected
Hui Ka Yan, the chairman of China Evergrande Group who is under criminal investigation, has become the latest example of the flaws in China’s property market, as his rise and fall would not have been possible without the sector’s many distortions and contradictions.
Hui, also known as Xu Jiayin, is a ruthless capitalist known for maximising credit to finance the expansion of a sprawling business empire. But he has also painted himself as a devout Communist Party member, and he installed thousands of party cells across his business with himself as the “secretary”.
Hui lived a decadent lifestyle with private jets, yachts, the most exclusive properties in Hong Kong and Shenzhen, and even a private dancing troupe. He also talked publicly about how he survived absolute poverty as a teenager, when he had to rely on potato starch and salt water for lunch.
The billionaire was one of China’s biggest philanthropists, pumping billions of yuan into southwestern Guizhou province to lift local people out of poverty while failing to deliver flats to homebuyers or make payments to suppliers and contractors, throwing millions of people into misery and despair.
Hui was a product of his ambition and greed, but also the deep problems in China’s hybrid market-command economy. Through an orthodox Marxist lens, China’s housing market development in the last quarter century was a spectacular result of turning land into commodities by unleashing the power of capital, giving people like Hui a stage on which to play.
The commoditisation of land and the privatisation of housing ownership have changed the country’s economic landscape for the better, providing improved living conditions for hundreds of millions of people. But the process also contained the seeds of its own destruction.
From day one, it was a system designed to benefit the state and capital owners. Mainland China’s property system is an even more intense version of what can be found in Hong Kong, where limited land supply and high property prices have contributed to an acute wealth gap and social ills.
Mainland municipal authorities seek to maximise revenues from land sales by limiting supply. They also have a greater ability to boost demand, including through methods such as tearing down old communities to push people to buy new homes.
Land monopolisation and the urbanisation process have generated massive wealth. Hui’s bets through excessive leverage and close ties with those in power proved hugely successful in the early days.
Hui has good reason to present himself as one of the country’s most “politically correct” entrepreneurs. His membership in China’s top political advisory body and generous donations to state priorities – including football and poverty reduction – have made it easier for him to be accepted as an agent for converting land into cash flows.
When property was in demand and prices were rising, everyone won. Local governments got money to improve city infrastructure, homeowners gained better living conditions and appreciating assets, and developers like Hui accumulated wealth at astonishing speed. But those conditions cannot be sustained forever.
Once ordinary Chinese households were emptying their life savings from their “six wallets” – a young couple plus parents on both sides – with a 20- or 30-year mortgage on top, it was clear that the party was coming to an end.
Everything is reversed when demand disappears and credit is cut off. Local governments were racking up huge debt as land sales dried up. Families no longer regard housing a safe place to park wealth, and developers like Hui have found themselves unable to pay their bills. Hui, celebrated as a hero just a few years ago, is now a criminal suspect.
But the job of fixing China’s property market and finding alternative revenue sources for local governments will be much more difficult than simply punishing people like Hui, who is not that unique among Chinese property tycoons. It is worth asking why Hui’s obvious wrongdoings, including overborrowing and overinvesting, were tolerated and encouraged for so long.
