Evergrande pain spreads to wealthy investors as more interest payments missed

Tens of thousands of Chinese households who bought high-yield investments risk being sucked into the spectacular unravelling of China Evergrande Group after the embattled developer missed payments on funds sold through shadow banks, which have funnelled billions into its construction projects.

“The Chinese government will place social stability as one of the priorities,” said James Feng, the founding partner of Poseidon Capital Group, a Chinese fund that specialises in distressed and special situation investments. The firm is also subject to heightened restrictions on its bank accounts as regulators ensure it uses cash to complete housing projects and not to pay creditors. The stock and bonds are reeling.

Trusts are also reducing their exposure to other property firms, a sign that Evergrande’s woes threaten the entire real estate industry, which accounts for more than 15 per cent of China’s economy. The trusts have cut outstanding loans to property firms by 201 billion yuan in the first half of this year, a drop of 17 per cent, according to the trust association.

Evergrande did not shy away from aggressive sales tactics. As the stock and bonds began to crater this year, it sent out a clear directive to employees: Find buyers for the company’s high-yield investment funds or your job could be at risk. A woman cries as she and other people gather at Evergrande headquarters in Shenzhen, southeastern China on Sep 16, 2021.

One fund investor, who identified himself as Mr Hu, rode a train for 20 hours in a hard berth seat to join protesters outside Evergrande headquarters in Shenzhen. The hardware factory worker from Henan province initially invested 100,000 yuan after being pitched by Evergrande staff. Evergrande Wealth is known as an independent wealth manager, which is among the least regulated corners of China’s sprawling shadow banking system.

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