China Evergrande Company's Problems Are Only Getting Worse

Chinese real estatedeveloper China Evergrande is facing problems restructuring more than $300 billion in debt due to criminal investigations into current and former executives of the company.

Evergrande, which has become a symbol of wasteful consumption in China

Evergrande, which has become a symbol of wasteful consumption in China, has taken on huge loans and spent widely. The company bought a soccer club and owned theme parks, and CEO Hui Ka Yang flew private jets.

The problems faced by Evergrande

Now that Evergrande is struggling to complete hundreds of thousands of pre-sold apartments and raise funds to pay off debts to''s suppliers, the company's future now depends on China's criminal justice system.

Evergrande faces two major challenges. First, the company is negotiating a restructuring plan with overseas creditors to resolve defaulted debt of over $30 billion and other demands.

Last week, Evergrande canceled a series of meetings with creditors, indicating that sales were "not in line with expectations" and that the company needed to renegotiate "the terms of the proposed restructuring".

In addition, Evergrande's efforts to manage its debt are now complicated by a second problem -''The company has been the subject of a criminal investigation into current and former executives.

This month, police in southern China reported the detention of employees of Evergrande's investment arm and the use of "criminal enforcement measures." Chinese media also reported that authorities detained the company's former chief executive officer, former chief financial officer and former chairman of its insurance company.

Although Evergrande has said little about investigations involving former executives, it has confirmed an investigation into Hui Ka Yang. In its statement, the company did not mention what offenses were being investigated.

Evergrande also said its shares would not be traded until further notice.''Evergrande shares have fallen 60 percent in the previous two weeks.

The Evergrande crisis and its aftermath

Evergrande got into this mess because of years of reckless borrowing and overbuilding after the Chinese government took action to limit debt risk from the real estate crisis.

Evergrande is far from the only case. More than 50 Chinese real estate developers have defaulted on their debts or failed to pay interest on their debts in the past three years after the government actively cracked down on over-borrowing by construction companies.

The way Chinese authorities respond to the aftermath of the Evergrande crisis could be a model for how Beijing will deal with other real estate developers' problems