Chinese police detain Evergrande employees after financial arm of indebted company fails to pay investors

Evergrande Wealth Management staff detained in Shenzhen, but it is unclear what charges they face or if general manager Du Liang is among them
Subsidiary of cash-strapped developer unable to make payments because of liquidity crunch, according to earlier announcement

China property

Cyril Ip

Published: 5:57pm, 17 Sep 2023

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Police in China have for the first time detained a number of employees at the financial subsidiary of Evergrande – the world’s most indebted property developer – two weeks after the group again failed to make payments on its investment products.

In a statement on Saturday night, police in the southern city of Shenzhen, where the cash-strapped developer is headquartered, said they had detained employees at Evergrande Wealth Management, including a person surnamed Du.

Du Liang is the unit’s general manager but it is not known if he is among those detained.

According to the notice, the suspects were subject to “criminal compulsory measures”, a term that usually refers to detention or restrictions on movements.

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Without specifying the number of employees held or the charges against them, the notice stated that the case was “under further investigation”.

It also called on the public to report suspected fraud in four ways – online, by phone, by text or by mail.

The wealth management unit was in the spotlight in 2021 after it was revealed that half a dozen employees redeemed wealth management products ahead of their scheduled dates.

Du reportedly cited “familial urgency” in his decision to redeem, sparking fury among thousands of clients whose redemption had been paused.

The group later said the six managers were reprimanded and ordered to return the proceeds.

Nationwide demonstrations erupted after Evergrande missed payments on 40 billion yuan (US$5.6 billion) of wealth management products in September 2021.

At the time, about 200,000 people had bought the products, according to investors.

By the end of June, the group had estimated debts of US$328 billion. On August 31, the wealth unit announced that it was unable to make payments to its investors due to a liquidity crunch, and that subsequent redemption arrangements would be announced separately.

03:11

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After years of serious insolvency, another Evergrande operation – its life insurance arm – was taken over on Friday by the newly created state-owned vehicle Haigang Life Insurance.

The vehicle is owned by Shenzhen City Penglian Investment, the China Insurance Security Fund and three other state-backed companies.

On Saturday, China’s securities regulatory commission filed a case against Evergrande over suspected violations of disclosure regulations.

Rating agency Moody’s last week revised its outlook for China’s property sector from “stable” to “negative”, arguing that the government support measures to boost property purchases would have a short-term and uneven impact.

Another debt-ridden developer, Country Garden, narrowly avoided default this month, after reporting a record loss and debts of more than US$150 billion. It has since received enough support to extend repayment deadlines for a series of onshore bonds.

Similarly, state-backed developer Sino-Ocean on Friday suspended payments on all its offshore debt, including almost US$4 billion of dollar-denominated bonds, to embark on “holistic debt management” – the latest company to show signs of trouble in China’s deepening property market crisis.