China's Evergrande chairman is being watched by the authorities

 China's Evergrande chairman is being watched by the authorities

As troubles for the Chinese real estate behemoth increase, police have placed Evergrande chairman Hui Ka Yan under observation.

Evergrande stated that until further notice, its shares would remain suspended.

It represents a new low for the massively indebted real estate conglomerate, whose bankruptcy in 2021 led to the current real estate market crisis in China.

In an effort to safeguard its American assets while it negotiated on a transaction, it filed for bankruptcy in the US in August.

Without providing any additional information, Evergrande said in a statement on Thursday that Mr. Hui "has been subject to mandatory measures in accordance with the law due to suspicion of illegal crimes".

The company's previous 17-month share suspension was lifted just one month prior to the most recent share suspension.

Evergrande, formerly the most valuable property developer in the world, is at the epicenter of a real estate crisis that is endangering the second-largest economy in the world.

The company, which has over $300 billion (£247 billion) in debt, has been frantically trying to generate money by selling assets and shares in order to pay suppliers and creditors.

The majority of Evergrande's debt is owing to Chinese residents, many of whom are regular individuals whose homes are still under construction.

Due to the property sector's significant contribution to China's economy, which accounts for about 25% of its GDP, the firm's 2021 default on its enormous loans sent shockwaves through the world financial markets.

Other significant developers in the nation have fallen into default during the past year, and many are currently having trouble raising the funds necessary to finish projects.

Hui Ka Yan: who is she?

Hui Ka Yan, also known as Xu Jiayin, was born into a low-income family in 1958, at the height of Mao Zedong's Great Leap Forward economic and social movement, in China's central Henan province.

Despite his upbringing, he rose to fame as the face of China's super-rich after founding Evergrande in 1996.

He acquired the moniker "Belt Brother" in 2012 after showing up to China's annual legislative meeting wearing a gold-buckled belt from the French luxury brand Hermès.

His wealth reached $42.5 billion (£34 billion) in 2017, making him the richest person in China.

But since then, his wealth has drastically decreased, partly as Evergrande's issues have become worse, and he has maintained a low profile.

Why would it be important if Evergrande failed?

Evergrande's issues are critical for a number of reasons.

First of all, many people purchased real estate from Evergrande even before construction started. If it fails, they can lose the money they have paid in deposits.

There are furthermore the businesses that transact with Evergrande. Construction and design companies, as well as suppliers of materials, are at risk of suffering significant losses that could drive them into bankruptcy.

Thirdly, if Evergrande defaults, banks and other lenders would be compelled to reduce their lending. This might have an effect on China's financial system.

This could result in a credit crunch, in which businesses find it difficult to obtain loans at reasonable rates.

The second-largest economy in the world would suffer greatly from a credit crunch because businesses that cannot borrow find it impossible to expand and, in some cases, are unable to continue operations.

Foreign investors can become uneasy as a result and think twice about investing in China.

What caused Evergrande's problems?

new strategy

Evergrande announced in July that it had lost a total of 581.9 billion yuan ($79.6 billion; £65.6 billion) during the previous two years.

After applying for US bankruptcy protection, the company has been working on a new repayment plan and appeared to be getting closer to finding a solution.

The company's most recent strategy called for it to reissue its foreign debt as new bonds that it would have to repay in around 10 years while also giving its creditors stock in the business.

But earlier this week, Evergrande disclosed that Hengda Real Estate, a subsidiary on the mainland, had defaulted on a 4 billion yuan debt.

Several current and former executives have reportedly been detained, according to Chinese business news outlet Caixin.

On Thursday, trading was also halted in its other two segments, property services and electric vehicles.

According to Lan Wang and Duncan Innes-Ker of Fitch Ratings, "China's property-sector stress will continue to pose cross-sector credit risks in the near term."

Even while it has recently resulted in some improvements in broader economic indicators, the government's moderate policy easing to date is unlikely to drive a significant turnaround in homebuyers' attitude, according to their analysis.