1 The arrest of Evergrande’s Hui Ka Yan and CCP elite politics
Hui Ka Yan arrested
In the evening of Sept. 28, 2023, China Evergrande announced that it had been notified by “the relevant authorities” that its chairman and executive director Hui Ka Yan (Xu Jiayin in Mandarin pronunciation) had been subject to “mandatory measures in accordance with the law due to suspicion of illegal crimes.”
A day earlier, Bloomberg News reported that Hui had been taken away by PRC police earlier in September and was being placed under so-called residential surveillance, citing people familiar with the matter. News of Hui’s arrest led to Evergrande’s shares falling sharply across the board (China Evergrande, Evergrande New Energy Auto, and Evergrande Real Estate) in Hong Kong and saw the company suspend trading on Sept. 28. The three suspended Evergrande entities had a combined market value of HK$16.7 billion on Sept. 27, or down from HK$81.4 billion before the company sought to resume trading near the end of August.
Previously on Sept. 24, China Evergrande said that its subsidiary Evergrande Real Estate was unable to meet qualifications for the issuance of new notes under its debt restructuring plan because it was being investigated by the authorities.
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Hui Ka Yan was previously the richest man in Asia in 2017, with a net worth of $45.3 billion. Hui’s net worth today is estimated at just $3.2 billion; the 2023 Hurun Global Rich List puts Hui’s net worth at 20 billion yuan (about $2.74 billion).
Other Evergrande executives arrested
Sept. 16
Du Liang, the general manager of Evergrande Financial Wealth Management, was arrested by the Shenzhen police, according to mainland media reports.
Sept. 18
China Evergrande announced that the subjection of personnel from its subsidiary Evergrande Financial Wealth Management to “criminal coercive measures” (i.e. arrested or detained by the police) will not affect China Evergrande’s operations.
Sept. 17
Zhu Jialin, the former chairman of Evergrande Life Insurance, was allegedly placed under investigation, according to mainland media Caixin and overseas Chinese language media.
Sept. 26
Caixin reported that multiple current and former executives of China Evergrande and its subsidiaries have been investigated or detained by the authorities, including:
- Xia Haijun, former China Evergrande CEO (restrictions imposed when he returned to the mainland in mid-2022).
- Pan Darong, former China Evergrande CFO (detained).
- More than 10 people working for Evergrande Financial Wealth Management have been arrested or detained by the police for the company’s alleged illegal fundraising, including Du Liang and deputy general manager Yao Bencai.
Political developments
Sept. 27
The CCP Politburo held a meeting and reviewed a comprehensive report on the first round of inspections of the 20th Central Committee (關於二十屆中央第一輪巡視情況的綜合報告).
According to official media, the meeting said that it was necessary to coordinate development and security, establish “bottom-line thinking” and “extreme thinking” (i.e. be prepared to face the worst), take “effective measures to prevent and resolve major risks,” and “firmly maintain the bottom line of safety.” The meeting also called for stepping up anti-corruption efforts in state-owned companies and the financial sector so as to enhance the “core competitiveness” of SOEs and boost the ability of financial enterprises to “serve the real economy and national strategy.”
Sept. 28
The CCP authorities appointed Shanxi Party secretary Lan Foan to serve as Party secretary of the Ministry of Finance. Lan, 61, would replace the 66-year-old Liu Kun; Liu continues to serve as finance minister.
Analysis: Liu Kun and Lan Foan were former colleagues in the Guangdong provincial government, with Liu serving as director of the Guangdong provincial finance department from Oct. 2002 to July 2010 and Lan serving as deputy director during that same period. It cannot be ruled out that Lan was appointed on the recommendation of Liu as Xi Jinping searches for trustworthy people to staff key positions and with Liu already past retirement age.
Our take
We believe that Xi leadership is looking to achieve various economic, political, and policy objectives by officially targeting Hui Ka Yan, as well as current and former executives of China Evergrande and its subsidiaries, over the past fortnight:
1. Beijing is almost certainly looking for a scapegoat to blame for the PRC’s real estate sector problems. Prominent property developers like China Evergrande (debt restructuring woes and liquidation risks), Country Garden (on the verge of defaulting), and China Sunac (filed for bankruptcy protection in the United States) are under obvious strain as property sales fail to pick up under worsening economic conditions in China. Meanwhile, Beijing’s efforts to stimulate the property sector are proving to be ineffective. The recent relaxation of price controls to boost sales could send the market spiraling downward even further; ANZ noted in a September report that a 30 percent drop in property values could see 12 percent (about $640 billion) of China’s $5.3 trillion mortgage book become negative equity, while a 50 percent price drop would see about 51 percent of mortgages underwater.
With a hard landing for the property sector looking unavoidable, the Xi leadership is likely paving the way to hold Evergrande and its executives responsible for creating the mess through its business practices and corruption.
2. The targeting of Hui Ka Yan and other Evergrande executives also allows the CCP authorities to later confiscate their wealth, stem capital outflows, and recoup some badly needed funds. According to mainland media reports, Hui had allegedly transferred more than 200 billion yuan worth of his assets overseas, while leaving in China through Evergrande nearly 2 trillion yuan in debts and other financial risks, as well as a pile of unfinished projects. The Hui family had also allegedly received nearly HK$60 billion in so-called “Ponzi dividends” (funds from creditors transferred to shareholders in the form of cash dividends) in the 12 years since China Evergrande was listed in Hong Kong, according to a 2022 report by mainland media Accounting Monthly.
Many Chinese scholars, including Renmin University’s Institute of Advanced Studies for Sustainability executive director Wen Tiejun, have noted in past speeches that Chinese business and financial elites have accumulated an estimated 100 trillion yuan in assets and transferred abroad about 20 trillion yuan.
Meanwhile, the situation with PRC civil servants not receiving their salaries or being made to take pay cuts as local governments run out of money persists. For instance, reports from overseas Chinese language media note that four districts in Beijing Municipality have to borrow money from the wealthier Chaoyang District in order to pay civil servant wages, and the Nanjing local authorities have not been able to pay salaries to civil servants since the end of May 2023.
If Beijing is able to confiscate even a fraction of the funds and assets that Hui Ka Yan and other Evergrande executives have in their possession, they would be able to keep the regime afloat for a while longer by redistributing their wealth to needy local governments or sustain other government operations. The Xi leadership could even promote the takedown of the wealthy “bureaucratic monopoly capitalists” at Evergrande under the banner of the “common prosperity” policy, and claim credit for attempting to make society more equitable. Should such actions prove to be popular with the masses, the Xi leadership could target other business and financial elites as it looks to restore some political legitimacy for the CCP. Of course, Xi Jinping also risks ramping up political instability by going after business and financial elites, a number of whom have political backers who belong to anti-Xi elites in the Party establishment.
3. Xi Jinping could be preparing to move against his lingering factional enemies by going after Hui Ka Yan and other Evergrande executives. Hui has long been known to have close associations with Zeng Qinghong, the de facto head of the Jiang Zemin faction following the passing of Jiang in late 2022. Zeng would have likely benefited by having Hui serve as his “white glove” (bagman) while Hui would have found it much easier to do business and accumulate immense wealth through the years by having Zeng (and by extension, the Jiang faction) as his political backer. Hui is also likely to have connections with former Politburo Standing Committee member and Jiang faction member Zhang Dejiang; Zhang was Guangdong Party boss from 2002 to 2007, or during a period in which Evergrande’s operations saw great expansion in Guangdong and nationally.
Xi has greater incentive politically to move against Hui and Zeng now if he suspects that Zeng and his remaining political enemies have been manipulating events behind the scenes to compel the removal of Xi’s allies like Qin Gang and Li Shangfu. As we wrote in the Sept. 21, 2023 newsletter: “If Xi suspects or believes that his being forced to order probes into his own allies and loyalists is the work of the remnant Jiang Zemin faction or other ‘anti-Xi’ forces in the Party elite, then Xi could decide to play hardball and ‘perish together’ (同歸於盡) with his enemies by expanding the anti-corruption campaign to target previously “untouchable” groups like the princelings, CCP elders like Zeng Qinghong, and lingering “anti-Xi” elements in the military (including princeling-controlled military industrial enterprises like China Poly Group).”
The Xi leadership’s rollout of a new five-year anti-corruption work plan also appears to be paving the way for Xi Jinping to make high-profile purges. Notably, Xi indicated that he would rather “offend thousands of people so as not to let down 1.4 billion people” in “eliminating malaise and controlling chaos,” and that his campaign would “investigate and deal with corruption where political and economic issues are intertwined.” Meanwhile, the Sept. 27 Politburo meeting called for stepping up anti-corruption efforts in the financial sector and the need for “bottom-line thinking.”
What’s next
The investigation and arrest of Hui Ka Yan and other Evergrande executives indicates that Beijing is likely willing to allow Evergrande to declare bankruptcy and enter into liquidation.
In a liquidation scenario, state-owned enterprises could be tasked to take over some of Evergrande’s more valuable assets and land. State-owned asset management companies could take over Evergrande’s unfinished projects; the completion of those projects could be delayed as the CCP authorities wait for the market to pick up again, or converted into other uses. The authorities will likely attempt to anticipate the actions and expectations of homebuyers in choosing how to deal with unfinished projects so as to avoid triggering extreme actions from desperate homebuyers and worsening social instability.
2 Political rumors involving Li Qiang circulate
Li Qiang rumors
Sept. 28
Rumors about the alleged corruption of PRC premier Li Qiang and his family were circulated on the internet.
Some noteworthy details in the rumors include:
- Li Qiang’s wife Lin Huan is allegedly the current director of the Zhejiang Institute of Business and Economics (浙江省商業經濟研究所) and has close relations with many celebrities in the business community, including Alibaba vice president Gao Hongbing.
- Li Qiang allegedly has invested at least 20 billion yuan or even 50 billion yuan in Ant Group. Li also allegedly has investments in companies such as Yunda Express (delivery firm), YTO Express (delivery firm), Hengdian Group (private conglomerate), and Dian Diagnostics Group (leading medical diagnosis company) that are conservatively estimated to be 80 billion yuan to 90 billion yuan.
- Li Qiang’s daughter Li Ying is allegedly Xi Jinping’s goddaughter.
- Li Ying’s company allegedly won bids for several large-scale architectural design projects.
- Li Ying’s husband is “very likely” a “foreign son-in-law” with British nationality.
- Li Qing’s family allegedly owns property that is valued as high as 90 billion yuan.
Zhang Dejiang the ‘third man’ at Beidaihe?
Sept. 28
Nikkei Asia reported that former Politburo member Zhang Dejiang was the third Party elder who met with Xi Jinping at this year’s Beidaihe gathering, alongside Zeng Qinghong and Chi Haotian, citing “sources familiar with China’s internal affairs” (see here and here for our analysis of Nikkei’s earlier articles on this topic).
Nikkei claimed that Zhang had “close ties” to the Deng Xiaoping clan and that “elderly representatives from all three major political forces were there to put pressure on the Xi administration,” including the Jiang Zemin faction and the military faction.
Qin Gang and Li Shangfu miss National Day reception
Sept. 28
The CCP held a National Day reception at the Great Hall of the People in Beijing. State mouthpiece Xinhua reported that national leaders from the 19th and 20th Central Committee, as well as members of the Central Military Commission, attended the reception. Former PRC foreign minister Qin Gang, defense minister Li Shangfu, and Li’s immediate predecessor Wei Fenghe did not appear in the footage of the reception released by state broadcaster CCTV.
Our take
1. Information about senior CCP leaders and their family members is usually kept highly confidential, with very little information available in the public domain. Political rumors about those senior officials and their families are also typically vague and lacking in details.
The recent political rumors about Li Qiang offer much more specific details than the usual run-of-the-mill claims. Under usual circumstances, this point in itself does not say much, especially because details can be easily made up and are very hard to independently verify. However, CCP elite politics has entered into strange territory since the emergence of political rumors about Qin Gang, Li Shangfu, and the PLA Rocket Force leadership came with those individuals being sidelined shortly after.
The Li Qiang political rumors could ultimately turn out to be a nothingburger. Yet it cannot be ruled out that they were “leaked” by the “anti-Xi coalition” and other enemies of Xi Jinping who are looking to “exploit the Xi leadership’s prioritization of national security matters to ‘manipulate’ the PRC leader into taking out his own allies and ultimately undermining his own interests,” as we previously analyzed.
2. The Nikkei Asia columnist’s continued “leaking” of information from “sources familiar with China’s internal affairs” about what allegedly happened at Beidaihe this summer has become even more fanciful in its account and has led us to seriously doubt that Xi Jinping even had an audience with Party elders led by Zeng Qinghong as the media outlet initially reported.
First, the Nikkei Asia columnist’s claim that Zhang Dejiang is “closer” to the Deng Xiaoping clan than Jiang Zemin is unsourced and difficult to verify. Yet it can be firmly established that Zhang has long been a Jiang faction member by tracking his career progression. In particular, Zhang’s career would take off with several back-to-back provincial leadership appointments (deputy Party secretary of Jilin [1990 to 1995], and Party secretary of Jilin [1995 to 1998], Zhejiang [1998 to 2002], and Guangdong [2002 to 2007]) after he traveled with Jiang to North Korea in 1990. In 2014, Zhang would later play a critical role in destabilizing Hong Kong (benefiting the Jiang faction and undermining the Xi camp) after he became a Politburo Standing Committee of the 18th Central Committee. Zhang’s elevation up the ranks under Jiang Zemin during the early part of the latter’s tenure, and later during the Jiang faction’s era of dominance (1998 to 2012), suggests that he was groomed to serve Jiang’s interests. In considering Zhang’s career and factional background, it is unlikely that he “represents” the Deng clan; if anything, the Jiang faction had two representatives in the alleged meeting between the three Party elders and Xi at Beidaihe.
Second, the Nikkei Asia columnist’s slowwalking of information about what supposedly went down at this year’s Beidaihe instead of presenting all the information in one go detracts greatly from the reliability of the account. While it cannot be ruled out that there may have been financial incentives for releasing the information in a piecemeal fashion (to generate page views and drive attention to Nikkei when the world is hungry for information about the ongoings at Zhongnanhai in light of Xi’s removal of political allies), the slowwalking of the information also happens to benefit the political mobilization of the Zeng-led Jiang faction and the “anti-Xi coalition” against Xi both inside and outside China. On a related note, we have observed that the CCP insider sources of the Nikkei columnist that were cited in articles stretching back years have a tendency to disclose information that is mostly positive about the Jiang faction and negative about Xi and his camp.
In view of the above, we are now highly skeptical of the Nikkei columnist’s entire account of the allegedly “Xi-Party elder” meeting at Beidaihe. We believe that it is more likely that Nikkei’s sources were looking to create the impression that Xi’s remaining factional rivals still wield substantial influence and there are opportunities for Xi’s enemies both inside and outside China to coordinate efforts to sideline him. If this is indeed the case and Xi suspects it, then this would affirm our assessment (see the first item in this newsletter) that Xi is partly moving against Hui Ka Yan and other top executives at China Evergrande now to pave the way to get at the company’s political backers (Hui has connections with Zeng Qinghong and likely Zhang Dejiang).
3. The non-appearance of Qin Gang and Li Shangfu at the PRC National Day reception indicates that they remain in trouble. However, the appearance of other members of the Central Military Commission refutes rumors that Xi Jinping has deepened his purge of leadership ranks of the military.
4. A glance at Xi Jinping’s schedule for September shows that he has made several inspection trips and stayed in Beijing for short periods of time. For instance, Xi visited Heilongjiang in early September, met with foreign dignitaries and attended the national congress of the China Disabled Persons’ Federation in Beijing in mid-September, before hitting the road again by traveling to Zhejiang (inspection tour and opening ceremony of the Asian Games) and Shandong (inspection trip). Overseas Chinese-language media also claim that Xi has been traveling by special train a lot more within China over the past three months.
Xi’s hectic scheduling in September could reflect nothing more than the increased workload of himself being “chairman of everything” and more securely taking on the mantle of paramount leader (定於一尊) at the 20th Party Congress. In view of intensifying factional struggle, however, Xi spending less time in Beijing could also be part of his plan to avoid assassination as he grows more concerned about his personal safety and prepares to move more aggressively against his lingering factional foes. The actions Xi takes over the next several weeks and months will provide more clues as to whether his activities in September were normal or if they indicate that something is amiss at Zhongnanhai.
