Authorities have suspended some staff at China Evergrande Group’s money management business, a sign that the saga surrounding the defaulting developer at the center of the country’s property crisis has entered a new phase. involving the criminal justice system.
The company’s shares fell as much as 25% after trading opened in Hong Kong, before paring its losses to 1.6% in the close. The stock has extended its decline this year to 63%.
Police in the southern city of Shenzhen said in a statement on Saturday that they had “new” staff detained, identifying one of the detainees by the surname Du. No charges were disclosed and the statement did not say how many people were jailed. Police are calling on investors to provide leads to authorities, including filing complaints online.
China Gives Assurances That The Evergrande Crisis Is Contained
Evergrande Financial Wealth Management Co., based in Shenzhen, is a wholly-owned unit of Evergrande founded in 2015. The company’s general manager is Du Liang, according to his Linkedin profile. Bloomberg News could not confirm that he was among the detainees.
Evergrande sits at the center of a credit crisis that has engulfed China’s real estate sector and curbed growth in the world’s second-largest economy. The debt-laden developer offloaded a range of assets, including parcels of trophy land and stakes in other financial institutions.
China Evergrande confirmed the detentions on Monday but argued it would not be affected. “The imposition of criminal coercive measures on the relevant personnel of Evergrande Wealth in accordance with the law will not affect the company’s operations,” it said in an exchange filing.
The detentions come as China begins a campaign against illegal fundraising to protect consumers. Li Yunze, head of China’s National Administration of Financial Regulation, promised in a Friday speech to deal with more major cases to protect the rights and interests of consumers.
More broadly, Beijing has been engaged in a crackdown on alleged corruption in the country’s financial industry since 2021, handing out harsh penalties, including the death penalty, to top executives.
Evergrande defaulted on 40 billion yuan ($5.6 billion) in wealth management products by 2021, sparking nationwide demonstrations and pressuring Beijing to find a solution to avoid further unrest. More than 70,000 people have bought the products, including many Evergrande employees, because the cash-strapped developer tapped them for funding.
The money management arm of Evergrande said on August 31 that it could not make payments due to investment products due to the collapse of liquidity.
China Evergrande is undergoing the country’s biggest restructuring ever, and the long-term process remains in limbo as key votes on its offshore-debt revamp plan were further delayed in October.
The government also formed a joint venture to take over the insurance arm of China Evergrande. State-backed Hai Gang Life will run Evergrande Life Assurance Co., according to notices released by the National Administration of Financial Regulation on Friday.
In Monday’s statement, Evergrande also said it sees no significant impact on current business operations from the sale of Evergrande Life.
–With assistance from Christopher Anstey.
Photo: The headquarters of China Evergrande Group in Shenzhen, China, on Thursday, Sept. 30, 2021. Photo credit: Gilles Sabrie/Bloomberg
Related:
Copyright 2023 Bloomberg.
Topics
Law Enforcement New Markets Property China
Interested in Law Enforcement?
Get automatic alerts for this topic.
