"Detention of China Evergrande Founder Signals No Leniency for Tycoons"

The detention of Xu Jiayin, founder of Chinese real estate developer Evergrande, has been interpreted as a signal that Chinese authorities will not tolerate tycoons.

On the 3rd, Hong Kong's South China Morning Post (SCMP) reported, citing analysts, that "the downfall of Evergrande's founder reveals the authorities' deep concerns about the impact of China's super-rich on the country's financial and social stability." According to an Evergrande statement on the 28th of last month, Chairman Xu was detained by police on charges of illegal criminal activity. This announcement followed reports that Evergrande's asset management executives had been detained and were under investigation.

[Image source=Reuters Yonhap News]

SCMP explained, "Analysts pointed out that despite the potential damage to trust in the private sector, Chinese authorities did not hesitate to take detention measures."

Deng Weiwen, former editor-in-chief of the Learning Times, the official publication of the Central Party School of the Chinese Communist Party, said, "Chairman Xu miscalculated by thinking the Chinese government would not let his company collapse and would not target tycoons," adding, "China wants to strengthen trust in the private sector considering the economic downturn, but President Xi Jinping will not be held hostage by private capital."

SCMP emphasized, "Containing financial risks in China has been a major policy goal of President Xi over the past decade," and "the Chinese government is particularly concerned about some large companies borrowing from Chinese banks and investors to finance overseas asset acquisitions."

There are accusations that Chairman Xu has moved his assets overseas. Huang Hongsheng, founder of Chinese electronics company Skyworks, recently criticized Chairman Xu on the Chinese social networking service WeChat, calling him "an enemy of the Chinese people who tried to use U.S. law to resolve problems."

Meanwhile, Evergrande, which resumed trading on the Hong Kong Stock Exchange that day, closed at HKD 0.41, a sharp increase of 28.13% compared to the previous trading day. Evergrande Group had announced on the 28th of last month that trading of three stocks?China Evergrande, Evergrande Auto, and Evergrande Asset Management?had been suspended on the Hong Kong Stock Exchange starting at 9 a.m.