According to insiders, the Chinese government is expanding its investigation into the suspected illegal and criminal activities of the billionaire founder of China Evergrande, a heavily indebted real estate company, to include banking professionals and financial institutions that facilitate high-risk behavior by developers.
These insiders said that the individuals under investigation also include a former head of the state-owned bank Bank of China.
  This industry once accounted for a quarter of China's total economic output during its peak period.
  But he added that anti-corruption must be carried out to the end.
Bank of China, China Evergrande, and the State Council Information Office responsible for handling inquiries with the Chinese leadership did not respond to requests for comment.
Economists say that while the expanding investigation may help regulatory agencies understand the chaotic situation in China's real estate industry, it may distract attention and hinder more substantial measures to stabilize the struggling industry.
The end of the domestic real estate boom has caused China to be heavily indebted, investors to panic, and many consumers are unwilling to spend. Analysts say they expect China's future growth to be even weaker, and if more measures are not taken to restructure developers' debt and enhance people's confidence in the real estate industry, a larger financial crisis cannot be ruled out.
As of the end of June, the debt scale of China Evergrande was equivalent to over 327 billion US dollars; The company disclosed in September that its founder Xu Jiayin was under investigation. Although no details have been disclosed since then, The Wall Street Journal reported that relevant departments have been investigating whether Xu Jiayin hid his assets overseas in China Evergrande's difficulty in delivering pre-sale properties.
The relationship between "Belt Brother" and banks is under scrutiny
People close to Beijing say that another focus of the investigation into Xu Jiayin is whether Xu Jiayin and his management team were involved in illegal fundraising activities, such as giving bank executives kickbacks in exchange for loans.
Xu Jiayin is known by many Chinese as the "Belt Brother" due to his love for Hermes leather belts. After the news of his investigation spread, Chinese social media was flooded with videos about his luxurious lifestyle, including a dance troupe used to receive banking professionals and other distinguished guests. Despite the financial difficulties faced by Evergrande in China, he still retained the dance troupe under the company. China's social media is closely monitored, and the rampant spread of these videos is a sign that the Chinese government intends to make an example of him.
Officials are particularly concerned about Evergrande's approximately 20 largest creditors, including state-owned banks and some banks controlled by lower administrative level governments.
Earlier this month, Liu Liange was arrested on suspicion of bribery and illegal loan issuance. He served as the Chairman and Party Secretary of Bank of China from 2019 to the beginning of this year, during which time the importance of Bank of China to Evergrande grew day by day. In March of this year, Liu Liange was investigated by the Central Commission for Discipline Inspection and was expelled from the party a few days before his official arrest.
Just a few days after the news of the investigation of Xu Jiayin, the founder and chairman of Evergrande, was exposed, the Chinese government announced the charges against Liu Liange, but did not specify the content of the charges.
According to insiders, some of the accusations against Liu Liange involve loans issued by Bank of China to Evergrande. They said that the timing of the announcement was intended to issue a warning to major banks and their executives, reminding them to pay attention to their risk exposure to Evergrande and the overall fallen real estate industry.
According to insiders, another bank under review is China Minsheng Bank, one of Evergrande's largest creditors.
Earlier this year, Minsheng Bank applied to securities regulatory authorities to issue approximately $7 billion in convertible bonds in order to strengthen its capital base amidst concerns about its real estate exposure in the market.
The regulatory authorities inquired about the bank's real estate risk exposure during the review of its application. In July of this year, the Shanghai Stock Exchange requested Minsheng Bank to list all its real estate debtors, including those who have already defaulted or are at risk of default.
Insiders say that Minsheng Bank has not provided this information. A month later, the bank cancelled the bond issuance plan due to the capital market environment.
Insiders said that the investigation into Xu Jiayin is expected to help relevant departments investigate the lending behavior of Minsheng Bank and other banks towards Evergrande.
Minsheng Bank did not respond to reporters' questions.
Risks faced by the Chinese economy
  The government's "three red lines" policy imposes strict debt and cash flow targets on developers, almost cutting off the liquidity of many developers.
Due to limited financing channels, Chinese developers have defaulted on over $120 billion in bonds issued overseas. Country Garden, once hailed as a model for Chinese developers, has recently become another Chinese real estate giant that has failed to repay its bonds on time.
The government has taken some piecemeal measures to support real estate developers and stimulate home purchases, but has not yet launched a comprehensive plan to help developers carry out debt restructuring and hold banks and other stakeholders accountable for losses. Economists believe that these are all part of the key processes needed to prevent the spread of risks.

As a result, some policy recommendations such as calling on the Chinese government to increase spending to assist some large developers or local governments, and then have them deliver unfinished houses, have not received much support, according to the above-mentioned individuals.
At the same time, the financial difficulties of developers are dragging down housing sales and construction progress, and they no longer have the money to complete the project and build new houses. The weak housing prices are further squeezing developers and slowing down China's rebound from sluggish growth this summer.
Arthur Kroeber, founding partner and research director of Gavekal Dragonomics, said, "The weak economic recovery is clearly closely related to the chain reaction from the real estate industry
This month, concerns about Evergrande's financial issues sparked a run on a small bank in Hebei, which is a sign that the risk may expand. Previously, there were posts on social media stating that Cangzhou Bank's total loan amount to Evergrande reached 3.4 billion yuan, equivalent to 465 million US dollars, making it one of Evergrande's top 20 bank creditors. Then there was a run on depositors at this bank.
The run only stopped after the Cangzhou Municipal Government called for people to remain calm and the local holding bank issued a statement. Cangzhou Bank issued a statement stating that the outstanding loan amount to Evergrande is 340 million yuan, rather than the rumored 3.4 billion yuan. The bank also stated that the overall risk is controllable.



Barclays' research shows that as of the first half of this year, real estate loans accounted for about one-third of China's total bank loans. The list of 20 major bank creditors disclosed by China Evergrande in 2020 does not include Bank of China. When China Evergrande was on the brink of default in 2021, Bank of China publicly stated that its risk exposure to this real estate company was relatively small, but did not provide detailed information.
However, according to the China Evergrande website, Bank of China is currently ranked 16th on the company's list of major bank creditors.
Faced with increasing political and financial pressure, Chinese banks have become increasingly aggressive in demanding Evergrande to repay loans, sometimes even sacrificing the interests of other creditors.
Last year, Evergrande disclosed that it had transferred approximately $2 billion in cash from an important subsidiary to a Chinese bank, but for the past four months, Evergrande has not informed its bondholders of this transaction.
Recently, after China's securities regulatory authorities refused to approve Evergrande's issuance of new financial instruments, the debt restructuring agreement reached between Evergrande and its creditors failed, after Evergrande had already applied for bankruptcy protection in the United States.