In January, more than 100 financial sleuths were dispatched to the Guangzhou headquarters of China Evergrande Group, a real estate giant that had defaulted a year earlier under $300 billion of debt. Its longtime auditor had just resigned, and a nation of home buyers had directed its ire at Evergrande.
Police on watch for protesters stood guard outside the building, and the new team of auditors were issued permits to get in. After six months of work, the auditors reported that Evergrande had lost $81 billion over the prior two years, vastly more than expected.
But they still had questions. Some records they had requested from Evergrande were incomplete. Numbers were missing. Important accounting errors or misstatements may have gone undetected. How had things at Evergrande — once one of China’s most successful companies — gone so wrong?
China’s housing boom was the biggest the world has seen, and Evergrande’s rise was powered by rapacious expansion, the system that stoked it and foreign investors who threw money at it. When China’s housing bubble burst, no other company imploded in as spectacular a fashion.
In 2021, the blame for Evergrande’s failure was placed squarely on a political directive from Beijing to cool the market by restricting access to loans by property developers, depriving the debt-saddled company of cash to fund its operations.
But interviews with people close to Evergrande and a reconstruction of publicly available documents offer an alternate explanation: Questionable accounting and poor corporate oversight, leading to problems like the disappearance of $2 billion, had already sent the company careening toward catastrophe.
The scale of Evergrande’s rise was staggering. For three decades, it wielded power in Beijing and in cities and towns thousands of miles away. The success turned its founder and chairman, Hui Ka Yan, into one of the world’s wealthiest people and enriched an entire ecosystem — from the local governments that…