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Chinese securities regulators found that some buildings inspected by Evergrande's auditor, PwC, and deemed complete and ready for move-in were
Chinese securities regulators found that some buildings inspected by Evergrande's auditor, PwC, and deemed complete and ready for move-in were "an empty lot."Evergrande, which Xu Jiayin founded in 1997, was by 2020 China's most indebted property developer. Developers in China often sell apartments years before they start building; most of the money is received upfront but cannot be recognized as a completed sale until the apartment is finished and handed over to the buyer. Since sales are a key metric used by lenders and bondholders to assess developers, Evergrande wanted to recognize them sooner. Regulators found that its workers falsified records of apartments that had been handed over by changing the handover date in the company's sales software. In 2019 and 2020 Evergrande boosted its sales by a total of 564bn yuan ($82bn), more than all of Tencent's revenue in 2020. Spotting this fraud was the job of PwC, the accounting firm that Evergrande hired to audit its books. In 2019, it sent 18 auditors to visit 65 construction sites. Fifty-one were not yet complete but were still counted as sales worth 51.3bn yuan, or $7.4bn. In 2020 Evergrande got PwC to replace 37 of the 50 initially chosen sites, labeling some "not allowed to go.”. The regulator found that sales on 32 of the 37 replacement sites were fraudulent. When auditors could not properly inspect a building, it says they "observing from the perimeter and climbing somewhere high to look from a distance". Reviewers in charge approved the inspections based on "trust" in the auditors who went to the sites. With PwC's stamp of approval, Evergrande issued five public bonds, raising 20.8bn yuan, or $3bn. The sales might have been fake, but the money buyers paid was very real, and many of them were Evergrande employees. In December 2020 a 30-year-old events planner at the company paid 220,000 yuan for an apartment of around 40 square meters (430 square feet) in a staff sale. In 2021 the building was only four stories high. She was told there was no money to finish it. She had also bought one of the company's investment products, to help her supervisor hit his sales target. "Evergrande needs us to give it money," an employee in the investment unit said. The investment products imploded in September 2021. In a leaked staff chat room, someone wrote that "99% of Evergrande staff bought Evergrande products". The general manager of the investment unit revealed that he had cashed in his investment early, on May 31st, because of "a family emergency". PwC was fined 441m yuan, or $61m. Evergrande's property arm was fined around 4.2bn yuan, less than 1% of the sales it faked. In August this year a court in Shenzhen sentenced Xu to life in prison.

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