When the ailing Chinese real estate giant Evergrande was starving for cash at the beginning of the year, it turned to its own employees with a strong pitch: If you wanted to keep your bonuses, you had to give Evergrande a short-term loan.
Some workers asked friends and family for money to lend the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans that were packaged as high-yield investments.
Now hundreds of employees have teamed up with panicked homebuyers to reclaim their money from Evergrande and gathered outside the company’s offices across China last week to protest.
Evergrande was once China’s most prolific real estate developer and the country’s most heavily indebted company. It owes money to lenders, suppliers, and overseas investors. It owes unfinished homes to home buyers and has amassed more than $ 300 billion in unpaid bills. Evergrande has faced lawsuits from creditors and this year saw its shares lose more than 80 percent of their value.
Regulators fear that the collapse of Evergrande’s corporate size would shake the entire Chinese financial system. However, so far Beijing has not launched a bailout as it has promised to teach a lesson to debt-ridden corporate giants.
The furious protests led by home buyers – and now by the company’s own employees – could change that calculation.
Evergrande is on the hook for buyers of nearly 1.6 million homes and could owe tens of thousands of its workers money, according to an estimate. With Beijing remaining relatively calm about the company’s future, those who owe money say their impatience.
“We run out of time,” said Jin Cheng, a 28-year-old clerk in the eastern city of Hefei, who, when asked, said he had invested $ 62,000 of his own money in Evergrande Wealth, the company’s investment arm of the upper Managements.
As rumors spread on the Chinese Internet that Evergrande might go bankrupt this month, Mr. Jin and some of his colleagues gathered outside the provincial government offices to pressure the authorities.
In the southern city of Shenzhen, homebuyers and employees crowded the lobby of Evergrande headquarters last week, calling for their money. “Evergrande, give back my money that I earned with blood and sweat!” Some could be heard screaming in video recordings.
Mr. Jin said employees at Fangchebao, Evergrande’s online property and auto sales platform, were told that each department must invest in Evergrande Wealth on a monthly basis.
Evergrande did not respond to a request for comment, but recently warned that it was under “tremendous” financial pressure and said it had hired restructuring experts to determine its future.
It was not always like this.
For more than two decades, Evergrande was China’s largest developer, making money from a real estate boom on a scale the world had never seen. With every success Evergrande expanded into new areas – mineral water, professional sports, electric vehicles.
Banks and investors liked to throw in money, relying on China’s growing middle class and their appetite for homes and other real estate. More recently, real estate has been scrutinized by Chinese regulators looking to end the boom go-go years and forcing the industry to pay off debt.
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The idea was to reduce the exposure of Chinese banks to the real estate sector. But in doing so, regulators took away the money developers like Evergrande needed to finish building houses, leaving families without the houses they had already paid for.
“The Chinese financial system is really complex and when you see cracks like this you can see the potential impact on society,” said Jennifer James, investment manager at Janus Henderson Investors. “If Evergrande disappeared tomorrow, it could be a socially systemic problem.”
Ms. James and other investors said they only learned about Evergrande’s wealth management strategy, which involved its employees, this month when the company announced it owed $ 145 million in repayments.
Evergrande has attempted to sell parts of its vast empire to raise funds but said last week it was “uncertain whether the group will be able to complete such a sale.” She accused the news media of causing panic among home buyers with negative coverage.
But Evergrande’s funding channels began to dry up well before last week. According to interviews with employees, state media reports, and corporate documents from the New York Times, the company began forcing employees to help the rescue as early as April when it began selling the short-term loans.
About 70 to 80 percent of Evergrande employees across China have been asked to provide money that would then be used to fund Evergrande operations, Liu Yunting, an advisor to Evergrande Wealth, recently told Anhui Online Broadcasting Corporation, a state news group .
A version of this interview was taken offline on Friday. Anhui Online Broadcasting did not respond to a request for comment.
The scope of the campaign and how much money it might have raised were unclear. Employees were told that they should each invest a certain amount of money in Evergrande Wealth products, and that if they didn’t, their performance compensation and bonuses would be docked, Anhui told employees.
Management said the investment was part of “supply chain financing” and would allow Evergrande to make payments to its suppliers, Mr. Liu said in his interview with Anhui. “Because we employees had to meet a quota, we asked our friends and families to deposit money,” he said.
Mr. Liu said his parents and in-laws invested $ 200,000 and that he invested about $ 75,000 of his own money in Evergrande Wealth.
Even before the protests last week, Evergrande was on the bad side of Beijing. At the end of last month, its executives were called to a meeting with the regulators. Officials from China’s leading banking and insurance regulators urged executives to clean up their large debts in order to maintain the stability of China’s financial market.
The authorities’ greatest concern is Evergrande’s unfinished homes. The company has nearly 800 developments underway in more than 200 cities across China.
Evergrande, which often pre-sells homes to raise money before they are completed, may still need to deliver up to 1.6 million homes to home buyers, according to an estimate by Barclays.
Under increased scrutiny, Evergrande gathered its top executives earlier this month and asked them to publicly sign a so-called “military order” – a promise to complete unfinished real estate developments.
Wesley Zhang and his family are among the hundreds of thousands of families still waiting for their homes, hoping the company can deliver. Mr. Zhang, 33, joined the other homebuyers who protested in Hefei last week after learning that Evergrande also owed his employees money.
“Everyone is scared, we are a bit like ants on a hot pan and have no idea what to do,” said Mr. Zhang, using a Chinese term to describe the hardship of witnessing such a $ 124,000 investment possibly disappears. He hoped the protests would get the government to act before it was too late.
“We hope this will get enough attention from the central government,” said Mr. Zhang. “Then someone would come out to intervene.”