A billionaire developer at the centre of China’s property crash has been jailed for life and has had all of his personal property confiscated.
Real Chinese house prices have fallen 23 per cent since 2021, after a speculation bubble that had been building for more than a decade finally popped.
At the forefront of the market’s debt-fuelled heights – before its staggering decline – was Hui Ka Yan, founder and chairman of China Evergrande Group.
Evergrande was China’s biggest real estate developer during the boom, with a stock market valuation of more than $A70.2 billion; crowning Hui one of the richest people in Asia.
But Evergrande relied on a high-leverage business model that ultimately collapsed after Beijing introduced new lending restrictions in a deliberate bid to rein in the market.
The company borrowed from banks to buy land, then sold apartments to citizens before construction began, using that cash to buy more land and borrow more money.
Hui and senior executives also falsified records and inflated the company’s revenue by $A110 billion, while hiding more than $A420 billion in liabilities, tricking banks and investors into believing the firm was highly profitable.
In April, he pleaded guilty to several charges, including embezzlement of assets and corporate bribery.
This week, Shenzhen Intermediate People’s Court sentenced Hui to life in prison and ordered that all of his personal property be confiscated, effectively reducing his net worth to zero.
Other Evergrande executives, including Hui’s sons Xu Zhijian and Xu Tenghe, were sentenced to jail terms ranging from 18 to 22 months.
The court also fined Hui’s former companies $A3.3 billion.
How China’s property market crashed
“The bubble in real estate in China really began as a response to the GFC,” former RBA economist Martin Eftimoski told news.com.au previously.
“To save the economy, they overstimulated the real estate market. A lot like the (Coalition government’s 2020) HomeBuilder policy.
“And China has spent the last 15 years dealing with the consequences of that decision.”
When demand for exports dried up during the GFC, China poured money into infrastructure and real estate, keeping GDP numbers artificially high.
Chinese local governments began relying heavily on selling land to developers like Evergrande to generate revenue.
Housing became a bubble inflated by speculative demand; one symptom was the “ghost cities” of empty apartments that Chinese speculators bought but never used.
Rather than waiting for a market-led crash, the Chinese Communist Party (CCP) deliberately popped the bubble in 2020.
Its “three red lines” policy included new lending rules, cutting off overleveraged developers like Evergrande from borrowing money.
Without new debt to pay off old debt, the company’s liquidity evaporated, leading to its historic 2021 default while it still had 1300 projects in the works across China.
Other massive developers, such as Country Garden, also defaulted in the industry-wide collapse.
Millions of ordinary citizens were left paying mortgages on unfinished or abandoned homes.
Hui was detained in 2023 and Evergrande’s stock market valuation shrank by 99 per cent before its shares were removed from the Hong Kong exchange two years later.
The CCP also put a cap on the number of mortgages banks could issue, further choking off demand, while excess supply from years of overbuilding, and slowing population growth, put further downward pressure on prices.
The result has been devastating for the Chinese middle class, which rose out of the property boom.
Though the CCP successfully curbed speculation, it also had the unintended effect of leaving many Chinese families feeling poorer, with consumer spending slowing.
“Most of the middle class in China stored their wealth in real estate, and when I mean stored their wealth, I mean their whole wealth,” Mr Eftimoski said.
“Its collapse has crushed their consumer confidence and is a major contributor to deflation there, and civil unrest.
“Consumer confidence is yet to recover in any meaningful way. People have been trying to buy gold instead of real estate to store their wealth.”
China story a blow to Australia’s coffers
The property collapse is also an ominous development for Australia, because China is the largest buyer of the nation’s top export, iron ore – turning it into the steel that fuels residential construction.
Australia’s iron ore export earnings are forecast to drop from $116 billion in 2024–25 to $107 billion in 2026–27, according to the Department of Industry, Science and Resources.
RBA figures show that China’s demand for steel peaked in 2020, with a fall since then driven by real estate, although demand from infrastructure and manufacturing have held up well.
Reduced demand for iron ore means the commodity fetches lower prices, and that directly hits the federal government’s company tax revenue.
Treasury calculated last year that every $US10 fall in the price of iron ore would wipe out $A500 million in revenue.
Singapore Exchange iron ore futures were trading around $US95.50 per tonne on Friday.
They’re down almost 60 per cent from a May 2021 peak, mirroring China’s property market.
Originally published as Chinese property king Hui Ka Yan sentenced to life in prison