Authorities Make Example of Chinese Company Evergrande, Who Is Accused of the Largest Real Estate Fraud Scheme in History

By: Lauren | Published: Mar 27, 2024

More than 20 years ago, Enron inflated its profits by $600 million, causing the biggest fraud scandal of all time. Now, a real estate company in China has beat Enron’s record by a whopping $76.4 billion.

The China Securities Regulatory Commission recently accused real estate company Evergrande of inflating its revenue by $78 billion between 2019 and 2020, and the company founder has been banned from the market for life.

China’s Evergrande Is in Real Trouble

Evergrande, which is owned by Hengda Real Estate, is in serious trouble with the The China Securities Regulatory Commission (CSRC).

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Exterior of China’s real estate company Evergrande’s offices

Source: Adobe Stock

The company is being charged with inflating its revenue by 564 billion Chinese yuan ($78 billion), as well as falsifying financial data. The company and several of its executives, including founder Hui Ka Yan, have been hit with substantial fines.

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Paying the Price for Fraud

According to Business Insider, the CSRC has ordered the company’s ex-CEO and ex-CFO to pay substantial fines. Furthermore, they have both been banned from participating in the market.

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Close-up photograph of Chinese yuan

Source: Freepik

On top of that, Evergrande founder Hui Ka Yan has to pay a 47 million yuan ($6.5 million) fine and has been banned from the securities market for life. But the company itself received the highest fine of an almost unbelievable 4.2 billion yuan ($583 million.)

Hui Ka Yan Has Lost Everything

The $6.5 million fine is just the latest in a long line of disasters for Evergrande founder Hui Ka Yan. In September 2023, the Beijing authorities confiscated the businessman’s passport and identification cards, as well as put him under house arrest and started 24-hour police surveillance.

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Founder of Evergrande development company Hui Ka Yan

Source: @PropertyPillars/Facebook

Although they did not charge Hui with a crime at that time, it became clear they suspected illegal activity. Now, nearly six months later, the world knows why.

Understanding the Magnitude of the Evergrande Scandal

For the average person, trying to understand a $78 billion scandal is almost impossible. These numbers simply seem too large to be real. However, in order to grasp the magnitude of this situation, it’s best to compare it to other famous fraudulent cases.

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Screenshot from a YouTube clip with the text “The biggest fraud in history” with Enron’s logo and photos of its two founders

Source: @ColdFusion/YouTube

In 2001, the Enron scandal took the world by storm as the biggest fraud in history. But Enron (only) inflated its profits by $600 million. That means, at $78 billion, Evergrade’s inflation is 130 times Enron’s.

There Could Be Many More Chinese Real Estate Companies Lying About Their Profits

While Evergrande is certainly in the hot seat right now, experts believe it is not the only company of its kind inflating profit margins.

Chart by Statista of the Chinese housing market boom and bust from 2018 to 2023

Source: Statista

Because of the recent property crisis in China, several developers are deeply in debt. The fear among financial experts in Beijing and around the world is that, whether these companies default or are charged with fraud, China’s dilemma could become a global economic crisis.

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The Hong Kong Stock Exchange Is Already Struggling

The trading of Evergrande shares has been forbidden on the Hong Kong Stock Exchange since January 29, 2024, but that doesn’t mean this situation won’t affect it.

Exterior view of the Hong Kong Stock Exchange buildings

Source: Shutterstock

The Hong Kong Stock Exchange closed out 2023 with some of the worst numbers on record, and 2024 hasn’t started off much better. While China still technically has the largest economy on the planet, if things don’t turn around soon, they could lose their number one spot this year.

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That Won’t Stop the CSRC From Cracking Down on Fraud

Although many Beijing financial experts are worried about the country’s economy, the CSRC has reported that they will not stop looking for fraud within China’s largest corporations.

Entrance to the China Securities Regulatory Commission offices

Source: @sharesanskar/Instagram

Zerlina Zeng, head of East Asia corporates at CreditSights research, told Business Insider, “The CSRC fines may serve as a warning to owners of other defaulted developers that failing to collaborate with authorities over debt restructuring could result in severe consequences.”

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Will the Beijing Housing Market Crash?

Of course, trying to avoid a housing market crash is no excuse to allow billions or even millions of dollars in fraud. So, the CSRC will continue to investigate and prosecute as needed.

Residential buildings developed by Evergrande in Yuanyang County, Henan, 2021

Source: Wikipedia

But simultaneously, other government officials in Beijing are working tirelessly to repair the ongoing crisis. According to Forbes, “Beijing stands ready to launch a new and radical solution to the economy’s property crisis,” and that solution is “a government takeover.”

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The Solution to the Problem Ignites Another

The People’s Republic of China is still ruled by the Chinese Communist Party (CCP). However, over the past few decades, the country has slowly but surely abandoned several communist policies in favor of capitalist legislation.

Digital illustration of the Chinese flag

Source: Freepik

But as Forbes explains, if the government of Beijing actually does take over the housing market to save it from ruin, “such an act would surely take the nation back to its communist roots.”

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Will a Government Intervention Affect the Global Economy?

As previously noted, if the Chinese housing market completely collapses, it could have severe ramifications for the global economy.

The skyline of Beijing, China in 2021

Source: Wikipedia

However, some worry that if the government does intervene and save the market from extreme crises, China’s return to communism will also have a significant effect on the world as a whole.

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What’s Next for Evergrande?

No matter what happens with China or its housing market, the once billion-dollar real estate company Evergrande has seen its last days.

Exterior of the Evergrande office building and a photo of founder Hui Ka Yan with a giant red X through the middle

Source: Shutterstock/@Huikayan1/X

The company will pay its $583 million fine and dissolve, and company founder Hui Ka Yan will pay his $6.5 million fine and likely retire, as he is now banned from working in securities ever again.

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