China Struggles To Identify A Credible Scapegoat For Property Crisis

This week, Caixin reported that China had detained the former CEO and CFO of the crisis-ridden property giant, China Evergrande Group. Xia Haijun and Pan Darong both resigned last year due to a finance scandal, as reported by James Palmer for Foreign Policy.

Evergrande appears to be heading towards liquidation, with other developers also facing severe challenges. I Photo: Chorzinghuam 2 Wikimedia Commons

Their arrests follow the detentions of staff from the subsidiary, Evergrande Wealth Management, and they both signal that it remains a highly precarious period for China's property sector, as well as for bankers and officials entangled in it.

Evergrande appears to be heading towards liquidation, with other developers also facing severe challenges.

China needs someone to hold accountable, or else there's a risk of bearing the blame themselves.

Given the intricate connections between the property sector, the banking system, and local government debt, the stakes are exceptionally high. For years leading up to the current crisis, local governments heavily relied on land sales as a primary source of revenue, constituting between 20% and 30% of their funding.

Developers purchased land, often relying on credit from banks expecting easy returns, while Chinese investors viewed property as a safe investment. Local governments also accumulated debt based on future land sales.

Evergrande has a multitude of creditors, both domestic and international, who are growing impatient with the absence of a clear debt plan and are anxious that restructuring efforts may be futile.

An Evergrande subsidiary missed a $547 million bond payment on Monday, and the company announced that slow sales would force the abandonment of a previous restructuring plan.

Consequently, the company's shares plummeted by an additional 19.1% upon hearing this news.

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