The Evergrande Story: A Look into Chinese Corporate Law and the Redefinition of Privately Owned Enterprises and Their Relationship to State-Owned Enterprises in the Chinese Economy

Abstract In December 2021, Evergrande, the second-largest private property developer in China, defaulted on its debt and became the most indebted firm in the world with over $300 billion in liabilities. Its default marked the beginning of a real estate crisis in China, one that is still in the process of being resolved. The Chinese State, through its State-owned enterprises (SOEs), has played an enormous role in mitigating the crisis. Had it not, it is very unlikely that Evergrande would remain in existence today, with huge ramifications for Chinese society and the national economy. This article undertakes a case study of Evergrande, a privately owned enterprise (POE) that exhibits SOE characteristics, to shed further light on the web of interactions between large enterprises in China. It reconsiders how ‘private’ some POEs are in the Chinese economy and argues that, at a certain level, both SOEs and POEs operate in a co-dependent manner. Not only does this challenge the conventional distinction between SOEs and POEs, but it also has wide-ranging implications for corporate governance in China. Indeed, SOEs find themselves having to bail out POEs and are exerting control over POEs in which they have no equity stake. SOEs are thus financially burdened with protecting all large enterprises including POEs, whereas POEs can operate in an unregulated fashion and receive rents from their close ties to SOEs. Altogether, this article’s analysis showcases the operation of various themes of Chinese corporate governance and contributes to the existing literature seeking to understand the unique role of the State in Chinese enterprises.