China’s Biggest Real Estate Scandal: The Fall Of Evergrande
Evergrande has been accused of inflating its revenue figures by $78 billion in a massive accounting fraud scheme. The Evergrande scandal has shocked the nation and further destabilized China’s real estate sector.
Hengda Real Estate, the main unit of China Evergrande Group, has admitted to falsely reporting 214 billion yuan ($29.7 billion) in extra sales in 2019 and 350 billion yuan ($49.3 billion) more in 2020. China’s securities regulator, the CSRC, has imposed heavy fines and lifetime bans on Evergrande’s founder Hui Ka Yan and other executives for their role in the fraud.
The inflated revenue figures represented half of Hengda’s total in 2019 and an astonishing 79% in 2020. Profits were exaggerated by 63% and 87% over the two years. Most disturbingly, Evergrande was able to fraudulently issue 20.8 billion yuan in bonds using the falsified financial statements.
How Could This Have Happened?
According to the CSRC, Hui Ka Yan personally instructed subordinates to “falsely inflate” Hengda’s annual results. As the ultimate supervisor, Hui took “particularly egregious” actions and delayed publishing financial reports to hide the truth. For years, Evergrande had been aggressively expanding through massive debt, likely using fraudulent accounting to maintain its unsustainable growth. The scandal is yet another blow to China’s troubled real estate sector, already reeling from Evergrande’s messy default.
The fall of Evergrande has devastated the Chinese property market and damaged confidence in the country’s financial system. With liabilities estimated at $300 billion, it remains the world’s most indebted developer. Its collapse could pose significant risks to the national economy if contagion spreads. The accounting fraud revelations have further eroded what little trust remained in the once high-flying conglomerate. Evergrande’s demise may take years to fully unravel.
