Xu Jiayin, the peasant who became the king of brick with Evergrande

The founder of the indebted real estate company Evergrande, Xu Jiayin or Hui Ka Yan —the Cantonese version of his name, by which he is also known—, aged 62, became the richest man in all china. In 2017, the rise of his group saw this lover of yachts and luxury brands push the hitherto almost untouchable Jack Ma, the creator of e-commerce giant Alibaba, to the top of the country's billionaire lists. . Forbes estimated his fortune at 45,000 million dollars (more than 38,000 million euros).

But now, having reached the top, he stands on the brink of the abyss. Evergrande is the world's most indebted property developer, with liabilities in excess of $300 billion: more than Finland's GDP. Although his problem, at the moment, is not so much the vast amount of debt as the liquidity crisis that he suffers and that causes him enormous difficulties to pay it. The fear of a bankruptcy that could drag down the entire real estate sector, and with it the economy of the second largest power in the world, keeps investors around the world on edge.

And his personal fortune has been reduced. Today, after the real estate developer has lost 84% of its value this year, Xu only has 10.7 billion dollars, according to Forbes. Hurun magazine ranks him fifth among China's biggest tycoons.

Theirs is a story similar to that of many other Chinese self-made billionaires, and runs parallel to that of the country itself over the past seventy years: Starting out in abject poverty, they rose to prominence in their industry thanks to their ambition and the personal connections they made. And they ended up achieving wealth and power unthinkable at the beginning.

Humble Beginnings

In the case of Xu, his story began in 1958, when he was launching the disastrous Great Leap Forward (1958-1962) campaign to industrialize China, which caused a famine that killed millions of people. The one who would later become a billionaire was born in a small village in Henan, one of the provinces most affected by that disaster. He lost his mother a few months after he was born. His paternal grandmother took over his care when the baby's father, a former soldier, found employment in a warehouse.

Years later, the Evergrande founder would recall his childhood as a time when his clothes and sheets “were completely patched all over the place” and his diet consisted of sweet potatoes and boiled bread dough. “I wanted to get out of the country as soon as possible, find a job in the city and be able to eat better,” he said.

He dropped out temporarily after finishing high school, during the Cultural Revolution (1966-1976) and resumed it after the universities reopened in 1978. He studied Metallurgy, and would work in companies related to this sector for a decade, during the years of post-Maoism and the beginning of the reform and opening.

In 1992, after having risen through the ranks in his company, he quit his job to move to Shenzhen. That fishing village neighboring Hong Kong had been chosen to become China's first special economic zone (SEZ), an area where capitalist formulas would be tested to promote growth. They were a complete success. By 1992, what would become the technological capital of a rising China was already becoming a thriving and energetic city.

Creation of Evergrande

In 1996, Xu founded Evergrande in Guangzhou, the capital of the province of the same name and neighboring Shenzhen. At first he opted for modest promotions in areas with affordable prices. But it soon became clear that he could up his ante. Housing was one of the sectors where a gigantic unsatisfied demand was accumulating, and developments were selling like hotcakes in the most populous country in the world and where owning an apartment was an essential condition for a man to be able to think about getting married. The continuous rise in prices, with no apparent ceiling in the main cities, made hundreds of millions of Chinese bet on the purchase of second, third or fourth homes as a safe investment. Evergrande expanded throughout China. Today it is present in more than 240 cities throughout the country.

Xu has skillfully managed his political connections and has publicly praised the Communist Party. According to the Canadian consultancy Cercius, quoted by the Financial Times newspaper, the promoter benefited on his way up from a close relationship with the vice president of China in the first years of the century, Zheng Qinghong, and his family. In 2018, he was one of the participants in the Party Congress where Chinese President Xi Jinping got formal term limits abolished, opening the door for him to stay in power for as long as he wants. Then, the real estate developer praised that, under the command of this formation, "over the last thirty years, private companies in China have been able to start from the bottom" and transform "from small to big, from weak to strong" .

By then, Evergrande was already an empire. In 2009 it had been listed on the Hong Kong Stock Exchange. A year later, Xu took control of the Guangzhou soccer team, which for years would be called the Guangzhou Evergrande and would dominate the sport in China, with eight league championships under its belt; the club signed collaboration agreements with the Real Madrid Foundation. Other investments followed in other sectors, from mineral water to tourism, including an electric vehicle factory that has yet to market a single model.

Liquidity problems

But all that empire was based on what has ended up being its great Achilles heel: debt. The company resorted to credit, easy to obtain, to finance its promotions. With the sale of real estate before they were finished, he financed other projects, in a formula that he would replicate in other sectors, such as wealth management products. Until Evergrande's particular bubble has burst.

If the empire expanded with the help of its creator's political connections, it was also politics that caused its downfall. Xi Jinping's China has begun to crack down on super-millionaires and sectors he considers too powerful, in the name of “common prosperity”. Chinese regulators have imposed a series of rules to limit the high level of indebtedness in the real estate sector. As a result, the group can no longer sell promotions before ending them. The liquidity crisis that this has unleashed threatens to collapse it. This summer, when the clouds were already gathering over the group's prospects, the founder resigned as president of Henda, the company's main real estate agency.

“I believe that thanks to the collective work of our leadership team, and all of our employees — if we continue to fight and persist through this fight — we will soon come out of this darkness,” Xu promised in a letter to his colleagues on Tuesday. about 200,000 employees. For now, markets await developments with bated breath.