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You probably have now heard of the debacle surrounding China Evergrande Group. The Chinese real estate conglomerate is more than $300 billion in debt — a figure equivalent to 2 percent of China’s gross domestic product — and missed a key interest payment to investors last week. Its travails have sent jitters through global markets, with analysts fearing a Chinese crash on the scale of what followed the implosion of U.S. firm Lehman Brothers in 2008.
For now, the company’s predicament remains chiefly a headache for policymakers in Beijing. “Evergrande’s model of rapid, debt-fueled expansion during the boom years of China’s urbanization made the group one of the country’s largest developers and briefly turned Xu Jiayin, its founder, into China’s wealthiest business person,” explained my colleague Christian Shepherd. “Chinese cities are dotted with Evergrande’s high-rise apartments, many of them snapped up as investments by newly minted members of the country’s burgeoning middle class in recent years.”
Evergrande’s boom, though, ultimately exposed the perils of China’s way of doing things — including an opaque financial system that allowed companies like Evergrande to engage in relentless borrowing and expansion, but also alleged corruption and heedless accumulation of debt.
Xu swanned around the world in private jets, attended conferences in Hermes belts and reportedly turned down a $100 million yacht for being too plain. But his and Evergrande’s bubble has appeared to burst amid a slowdown in property markets and a political course correction by President Xi Jinping’s government, which has started reining in lending to overleveraged developers like Xu. Now, Evergrande finds itself in the crosshairs of a wider push by Xi that has been described by some commentators as a “leftward” turn against the Gilded Age-energies that powered China’s growth in recent decades. Nationalistic commentators want to see Evergrande be allowed to fail and left a shattered, cautionary tale of the rapacious greed of a clutch of powerful elites in the country — now no longer in Beijing’s favor.
“The company’s crisis is testing the resolve of Chinese leaders’ efforts to reform as they chart a new course for the country’s economy,” noted the New York Times. “If they save Evergrande, they risk sending a message that some companies are still too big to fail. If they don’t, as many as 1.6 million home buyers waiting for unfinished apartments and hundreds of small businesses, creditors and banks may lose their money.”
But until these past few weeks, the story of Evergrande for many non-Chinese outsiders was not about the fortune and misfortune of a real estate empire — but of a soccer team. For the past decade, Guangzhou Evergrande has been arguably Asia’s most successful club, winning eight Chinese league titles and the Asian Champions League — the continent’s most prestigious competition — twice in 2013 and 2015. Based in the southern metropolis not far from the border with Hong Kong and bankrolled by Xu’s property empire, the club was the poster child for Chinese soccer and a testament to Beijing’s global ambition.
Xi came to power in 2013 and made no secret of his interest in boosting China’s fortunes as a soccer power after decades of suffering humiliating defeats to regional rivals Japan and South Korea. To curry favor, major business leaders like Xu, who had stakes in China’s soccer league, devoted vast amounts of money to make their teams more competitive on the international stage.
For a number of years, Guangzhou Evergrande and a handful of rival Chinese clubs also owned by major property developers spent larger money on players than far more famous soccer clubs in the West. A string of somewhat prominent stars, many from South America, forsook promising careers in Europe for riches promised in China. Guangzhou Evergrande was the most dramatic illustration of this moment — its 2015 victory in the Asian Champions League signaled a kind of apex — and at one point was valued at $1 billion.
But its success was not sustainable and Xi’s government, seeing how little the flood of richly paid foreigners was doing to enhance the strength of China’s own struggling national team, slowly started to shift course.
“The prevailing political winds could change at any time, draining financial and governmental support,” noted Foreign Policy in 2018. “And while the Olympics model of heavily directing individual talent into smaller events paid off, the world’s most popular sport is harder to dominate than target shooting and synchronized diving.”
Now, the state of Evergrande’s soccer team provides a parable for its broader decline. Both Xu and Jack Ma, the founder of tech giant Alibaba, which bought 50 percent of the club in 2014, are now seemingly persona non grata in Xi’s China. The team itself has been renamed Guangzhou F.C. as part of a nationwide mandate by authorities to use “neutral names,” anddistance Chinese soccer from the excesses and vanity of these tycoon owners. Unsurprisingly, the club’s competitiveness at the continental level has diminished.
The Chinese Super League’s “club expenditure is about ten times higher than South Korea’s K-League and three times higher than Japan’s J-league, but our national team is lagging far behind,” Chinese Football Association President Chen Xuyuan told state-run Xinhua News Agency in February. “The bubbles not only affect the present of Chinese football, but also hurts its future.”
On Tuesday, Guangzhou F.C. parted ways with its coach, Italian World Cup-winning former defender Fabio Cannavaro. There are suggestions that provincial authorities may step in to assume part ownership of the club. It also may be disbanded, according to Bloomberg News.
Curiously, construction on a major 100,000-seat capacity stadium for Guangzhou F.C. by the Evergrande Group is still continuing no matter the company’s dire financial straits. The project to build what may be the world’s largest purpose-built soccer stadium began in April 2020 and may cost up to $2 billion.
“The world’s eyes are on it,” the owner of a small store nearby the construction site told Reuters on Sunday. “How could the biggest soccer stadium in the world not be built? It won’t become a waste construction site. The government wouldn’t let this happen.”