The brick crisis in China enters a new phase: the judicial one. The police of the Asian giant have arrested, for the first time, several employees of Evergrande Financial Wealth, the financial arm of the most indebted real estate developer in the world. The arrests, of which the details are unknown (number of people, charges, causes ...), were announced on Saturday by the authorities of Shenzhen, where the Chinese company has its headquarters, with a message in which it also requested the collaboration of the "investors" to process their "complaints".
The police note provides only one concrete information: among the "criminal suspects" is a worker "named Du" (some media speculate that it could be one of the directors of the company), and ensures that the investigations are still underway. The subsidiary unit already made a first misstep in 2021, when six employees amortized wealth management products ahead of schedule. That episode was settled with the obligation of the workers to return the funds and a reprimand, according to the company. By then, Evergrande was a pile of debt and besieged by creditors, investors and suppliers.
The group, which has been in serious financial trouble for years, reported losses of 33,012 million yuan (4,198 million euros) in the first half of 2023 last month. Just a week earlier — a month ago — he had announced that he was filing for bankruptcy in the United States. At the beginning of September, its main subsidiary, Hengda Real Estate, reported that it faced at least 1,931 litigations for an amount of 437,743 million yuan (56,430 million euros).
The company, lacking liquidity, faced its first dollar debt default at the end of 2021. Since then, it has been immersed in a complex restructuring process, but it is still unable to meet its liabilities.
Stock market crash
After the news of the arrests, the shares of what became one of the largest Chinese construction companies – 1,300 promotions in 280 cities – have fallen on Monday up to 25% on the Hong Kong stock exchange, to which it returned less than a month ago after almost a year and a half suspended from trading; The decline has been moderating as the day progressed.
Country Garden, the other major Chinese developer that has flirted with the financial cliff in recent weeks, has been dragged down by the Evergrande effect: its shares have left more than 2.8% in the Hong Kong Stock Exchange. The Hang Sheng, index of the Hong Kong Stock Exchange, has closed with a fall of 1.4% weighed down, among others, by both real estate.
The complications of these two giants are a metaphor for the slowdown of the brick in the People's Republic: once an engine of growth and today a source of headaches for the communist commanders in Beijing. With consumption stagnant since the pandemic, the Chinese government has proposed in recent weeks various initiatives to stimulate home purchases.
The decline of this industry, which accounts for about a quarter of China's GDP, worsened again in August: new housing prices fell (at their fastest pace in 10 months), investment in promotions (it has been declining for 18 months) and sales (dragged 26 consecutive months of downward trend), according to Reuters calculations based on official data from China.
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