As China’s property giant Evergrande veers toward collapse, its unpaid debts spark protests

SHENZHEN, China —

They came from all over the country, dragging cheap suitcases and clutching file folders filled with records, chanting in front of the glassy skyscraper: “Evergrande, pay up!”

They were the owners of small lighting and plumbing and construction materials companies, suppliers for Evergrande, one of China’s largest property developers — now staggering under more than $300 billion in debt and facing potential collapse.

Dozens of protesters were gathering daily here in recent days at Evergrande headquarters. Many of these protesters were contractors who had accepted commercial papers, a type IOU, as payment for their projects. However, Evergrande was unable to pay them when they came due.

” They say, ‘We don’t have any money. Li Gexin, a manager at a Qingdao janitorial business, said, “Do whatever you want.” It had 200 workers who’d cleaned Evergrande’s sales offices for a year and were owed more than $300,000 in commercial papers.

Police officers look at people outside the Evergrande headquarters

Police officers look at people gathering at the Evergrande headquarters in Shenzhen, China, on Thursday. Chinese property giant Evergrande said that it is experiencing financial difficulties.

(Noel Celis / AFP/Getty Images)

“If we don’t get the money, we can’t eat,” said Li, who’d driven for 24 hours to the Shenzhen headquarters. He said that they needed the money to feed their families and buy medicines for their elderly relatives, pay their mortgages, and to provide their basic needs. Numerous other suppliers were present, sharing similar stories.

Legions of police bearing riot shields stood nearby. Others carried banners reading “Gathering Evidence” and walked among the crowds, taking photos of every person.

The distress surrounding Evergrande’s collapse is a window into China’s problem with bad debt. Evergrande, one of the most successful property giants in China, has enjoyed a boom over the past few decades thanks to its model of huge borrowing and rapid expansion. It relied on cash flows from apartments it planned to build.

This worked so long as they were able to continue getting loans for new projects despite a decline in housing demand. But in August 2020, government regulators laid down new rules about how much debt developers could take on. After a year of trying to reduce its liabilities and declining sales, Evergrande acknowledged in public statements this month it may not have the ability to repay its debts. Credit ratings agencies Fitch, Moody’s and S&P downgraded Evergrande to levels indicating “in or very near default.” Its stock value has dropped 80% this year, and it has an estimated 1.4 million more homes that it’s already sold but not yet built.

People gather outside the Evergrande headquarters building while police watch

People gather at the Evergrande headquarters building in Shenzhen, China, on Wednesday. According to the Chinese property giant, it is in financial trouble.

(Noel Celis / AFP/Getty Images )

Although the government may step in to mitigate the damage, Mark Williams, chief Asia economist at Capital Economics, said that Evergrande’s collapse “would be the most difficult test that China’s economic system has faced in many years.” In an analysis, this month, Williams stated, “Evergrande would be the greatest test that China’s financial systems have ever.” It will hurt the developer’s creditors, investors, and all those who purchased unfinished homes, put savings in Evergrande wealth management products, or were paid in IOUs by its subcontractors and contractors.

Some suppliers had pledged their homes as collateral for loans to cover the work of Evergrande. They believed that such a large company would be able to pay. They are now under increasing pressure from their bankers and workers.

The entire construction supply chain used Evergrande IOUs for years instead of cash, according to Cai, a Wenzhou supplier who requested to be identified by her last name.

When Evergrande failed to pay the July commercial papers she assumed that the company could transfer money from an Evergrande project if it was in difficulty.

We thought it could not be that all their projects across the country were out of money. She said, “It’s impossible to be realistic.” However, suddenly Evergrande’s IOUs were no longer wanted. She said they had become “worthless pieces” of paper. “Then we panicked.”

At the headquarters, police herded protesters toward a cafeteria on the fifth floor of a nearby building. Evergrande staff were seated at tables made of orange plastic with the names of each province. The staff encouraged suppliers to file complaints and promised to give them Evergrande properties, such as unsold apartments, commercial storesfronts, or parking spaces, at a discounted rate to offset the debts.

Policemen stand in formation at the Evergrande headquarters

Policemen stand in formation at the Evergrande headquarters in Shenzhen, China, on Wednesday.

(Noel Celis / AFP/Getty Images

Chen Xiawang, who is the owner of a lighting and electronics company in Wenzhou sat at the Shaanxi provincial table. Evergrande’s Xi’an branch owed him more than $200,000, he said. Half of his employees had been laid off. He was told by staff that he could find parking spaces in Xi’an. But when he called the office, workers told him that they hadn’t received any instructions from their superiors.

A few hours later, he received a call in Wenzhou from the police, and showed The Times the call records. He was told to return home and not “making trouble” in Shenzhen.

” This is not the right way to do it,” Chen stated.

Outside, several women sat against the wall on suitcases and pieces of cardboard. They were here for four days and ate one bowl of noodles per night.

Even if parking spaces and shop space were real, one woman said that no one wanted them. Li was her name and she had supplied decorative materials to Evergrande in Anhui province. She said that they owed her more money than $1 million.

” We have four parking spaces from Evergrande already,” Li stated.

Another woman, a construction manager from Shandong who asked that her name not be used, agreed. She was owed more than $300,000 and had dozens of migrant workers waiting for payment at home. “I owe this worker $1,500 and that worker $750. Do I have to give each one a brick? A toilet? A room?”

People walk by a map showing Evergrande development projects in China

People walk by a map showing Evergrande development projects in China at a city plaza in Beijing on Wednesday. One of China’s largest real estate developers is trying to avoid defaulting on billions in debt.

(Andy Wong / Associated Press )

Analysts believe that Evergrande will be restructured by the Chinese authorities to minimize economic damage. At a time when Xi Jinping is transitioning to his third term, the potential for financial and social instability would be too great.

The most likely outcome is a managed restructuring, in which other developers assume Evergrande’s unfinished projects in return for a share in its land bank.” Williams said. In this scenario, China’s central banks provides liquidity support. He said that home buyers would likely be given priority in such a scenario.

It’s not clear what would happen with the people who arrived in Shenzhen to seek their money.

“They sacrifice one group of people in order to save the majority,” said Ye Hong, 55, a clothing exporter from Ningbo who had invested his retirement savings of nearly $800,000 in Evergrande’s now-frozen wealth management products.

Ye came to Shenzhen to retrieve his investment. He was not hopeful after trying to negotiate, hearing the other owed amounts and seeing police officers everywhere.

I just trusted them too much,” said he.

Ziyu Yang of The Times’ Beijing bureau contributed research to this report.

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