As China Evergrande Debt Crisis Worsens, Unpaid Small Business Owners Speak of Desperation

SHENZHEN, China, Sept. 16 (Reuters) – Wu Lei says his small construction company in central China accepted commercial paper from real estate developer Evergrande (3333.HK) as payment for two years, but the value of with this paper now in doubt, his business is on the verge of collapse.

China Evergrande Group, struggling with more than $ 300 billion in total liabilities equivalent to 2% of China’s GDP, is in the throes of a liquidity crisis that is forcing it to raise funds to pay its many lenders and suppliers.

Wu, 35, was among over 100 protesters who marched to the headquarters of the country’s second-largest real estate developer in Shenzhen this week, desperately seeking guarantees of payment.

“We worked for Evergrande, so our suppliers trusted us with the materials without us having to pay up front. Now they are suing me, the courts have frozen my property and I have sold my car. And I still have employees who need to be paid, “he said.

The plight of Wu and many others like him shed light on the heavy use of commercial paper in China’s real estate industry. Developers prefer it because they prefer not to prepay and because it doesn’t count as interest-bearing debt. The document promises contractors and suppliers payment by a fixed future date, usually within a year.

Owing an additional 500,000 yuan ($ 78,000) and an additional 2 million yuan owed in March, Wu has now returned to his hometown of Kaifeng, Henan Province, to continue his lawsuits, but is concerned that the settlement will take hold. months.

Evergrande says he’s working hard to repay investors in his wealth management products and is in talks with banks to roll over the loans, but didn’t mention small vendors and contractors. The financial markets, meanwhile, have taken into account the likely defaults on its obligations and expectations are high that its assets will need to be restructured.

It is not known exactly how much Evergrande commercial paper as a group has issued, but its flagship unit Hengda Real Estate Group Co Ltd disclosed some $ 32 billion at the end of 2020.

Despite its massive debt load, Evergrande’s name was held in high regard in mainstream business circles until the end of last year, and its commercial paper was even traded in sectors unrelated to construction.

A small marketing and consulting business owner in one of Guizhou province’s poorest counties said he accepted Evergrande commercial paper from a client and expected a payment of 1.5 million yuan which was now two months late.

“I feel depressed and sorry for my family, to have to accompany me in a life in debt,” he said. He declined to give his name, citing rumors of physical threats made against protesters.

While the protesters numbered around 100 on Monday, their number fell to two dozen on Thursday, many losing hope or running out of money.

A protester who only gave his last name Zhang left for Guangzhou on Wednesday after hearing rumors that the company would publish an announcement from there.

“But I think they might just find ways to separate us by dragging us around,” he said.

At least two protesters were arrested on Thursday, but others were digging, sharing links in protest groups for cheap yoga mats to serve as makeshift bedding while sleeping on the streets. Read more

“I am reduced to sleeping on the streets and eating whatever I can. I cannot afford to leave Shenzhen even if I wanted to,” said a trader from Jiangsu Province.

($ 1 = 6.4388 Chinese yuan)

Reporting by David Kirton; Additional reporting by Clare Jim in Hong Kong; Editing by Edwina Gibbs

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