The Fall of the Slum Success Story That Dreamed of Becoming the "World's Best Electric Vehicle Company" [News Inside]

Chairman Xu Jiayin of Evergrande Group

▲Xu Jiayin, Chairman of Evergrande Group

[Asia Economy Reporter Kwon Jae-hee] The term 'Asia-originated Lehman Crisis' refers to the crisis faced by China's real estate company Evergrande Group, which expanded its business recklessly through excessive borrowing.

Xu Jiayin, chairman of Evergrande Group, once hailed as a success story from a slum and known as one of China's representative self-made entrepreneurs, has seen his success story collapse due to this crisis.

Chairman Xu Jiayin was born on September 9, 1958, in a slum on the outskirts of Zhoukou City, Henan Province, southern China. His mother died of sepsis when he was just one year old, and he was raised by his grandmother.

He barely entered the Metallurgy Department of the Steel Academy (now Wuhan University of Science and Technology) in Wuhan in 1978, ranking third. However, he lived a difficult life, surviving on about 3,000 won per month in government support, and after working at steel and trading companies, he finally established Evergrande Real Estate in Guangzhou in 1996.

Unlike the Chinese real estate trend at the time, which focused on large areas, Xu Jiayin penetrated the market with 'small areas and low prices.' This strategy succeeded in the Chinese market, and by 1999, Evergrande Real Estate became the seventh largest real estate company in Guangzhou. The number of employees, which was less than 20 in 1997, surged past 2,000 by 2004, showing rapid growth.

Last year alone, Evergrande posted sales of $78 billion (about 91 trillion won), carrying out over 1,300 projects in more than 280 Chinese cities, growing into the second-largest real estate developer in China. It is listed on the Hong Kong Stock Exchange, and Xu Jiayin was ranked as the richest Chinese person by Forbes in 2013.

[Image source=Yonhap News]

Evergrande's downfall began when it entered the 'electric vehicle' market. Xu Jiayin judged that electric vehicles were more promising than the heavily regulated real estate sector and officially entered this market in February 2019. Xu Jiayin had already recklessly expanded his business relying solely on borrowing, and with the funds raised, he had ventured into other business areas. In this context, when the Chinese government tightened real estate regulations in 2018, Evergrande renamed its healthcare service company listed on the Hong Kong Stock Exchange, 'Evergrande Health,' to 'Evergrande Auto' in July last year. They invested $2 billion (about 2.2 trillion won) just in initial factory construction in Guangzhou and Shanghai, and set a goal to produce 500,000 vehicles annually starting next year and become the world's largest electric vehicle company by 2025.

The problem was that they had not sold a single electric vehicle, yet the stock price surged 1,150%, and the stock was overvalued based on rosy prospects. According to Evergrande Group's annual report, although total debt increased every year after listing, dividends were paid every year except 2016, during which Xu Jiayin collected tens of billions of dollars in dividends alone.

Internal financial conditions worsened further. Last year, as the Chinese corporate bond default crisis intensified, Evergrande Group's bonds were sold at a steep discount. This was seen as a signal of Evergrande's deteriorating financial structure. In particular, Evergrande Group's current debt stands at $300 billion (about 351 trillion won), and the interest on bonds due this year alone amounts to $670 million (about 784.3 billion won), raising uncertainty over bond repayments and escalating bankruptcy risks.