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China response to Evergrande influenced by links to Xi's rivals

Founder Xu's coziness to once-powerful Youth League turns from boon to barrier

Evergrande founder Xu Jiayin was photographed at the Tiananmen gate tower during July's Communist Party anniversary event. (Photo courtesy of China Evergrande Group)

BEIJING -- Before China Evergrande Group's slide into crisis, its founder and chairman Xu Jiayin turned heads with a photo op along the Tiananmen gate tower during the July 1 celebration of the Chinese Communist Party's 100th anniversary.

His ascent to these rarefied heights underscored his connections to heavyweights in the party, which decides whether Chinese companies live or die. Market watchers speculated -- at least for a time -- that debt-laden Evergrande had navigated through the worst of its problems.

But it seems that few in the party were willing to actually champion its cause, for reasons that may involve internal party politics.

There are economic reasons for President Xi Jinping's government to keep its distance. Questionable decisions by Evergrande such as recruiting high-paid foreign players for its soccer team and investing in electric vehicles -- both ventures ranging beyond its primary area of expertise -- have long been a concern.

But in addition to that, Xu is believed to have close ties to the party's once-powerful Communist Youth League faction, which has been marginalized under Xi.

Eleven months before Evergrande's November 2009 initial public offering in Hong Kong, Xu met with then-Communist Party leader Hu Jintao, a member of the Youth League faction, who praised Xu's support for poor students.

Fellow faction member and current Vice Premier Wang Yang was at that time the party boss of Guangdong Province, where Evergrande is based. Many believe that the faction, which then formed the core of China's government, helped move the developer's listing forward, ultimately kicking off its meteoric growth in the ensuing years.

Guangdong is viewed as a Youth League stronghold. In June 2017, Xu met with Hu Chunhua, then the province's party secretary, in Guangzhou and pledged to donate 400 million yuan ($61.9 million at current rates) to help alleviate poverty. He ended up contributing 600 million yuan over two years.

Later Xu topped Forbes' 2017 China Rich List, and Hu went on to become vice premier, with the Youth League faction still hanging its hopes on him.

However, after Xi assumed leadership of the Communist Party in 2012, the faction lost much of its clout as the new president pushed members out of major party and government positions.

These included the top party post in Guangdong Province, where Xi installed close ally Li Xi. The province now has almost no Youth League representation among its senior leadership.

Xi is widely believed to be politically distant from Premier Li Keqiang, who is also part of that faction, as well as Wang and Hu Chunhua -- both once speculated to be potential successors. It would be no surprise if the president regarded the woes of Youth League-linked Evergrande as not being his problem.

As rumblings about a debt crisis at the developer surfaced in mid-September, Xi paid a visit to the inland province of Shaanxi, accompanied by officials including Vice Premier Liu He, who oversees macroeconomic policy. Their absence from Beijing was taken as a sign that the government would wait and see how the situation played out.

In an earlier snub, Xu was conspicuously absent from a list of 40 "role models" honored last October in the Guangdong Province city of Shenzhen to mark the 40th anniversary of its special economic zone. Xi participated in the ceremony.

The Communist Party's slowness in dealing with Evergrande, after its decisive action in the face of past economic crises, could be related to this political distance.

"It may be that Xi is choosing not to help shore up the position of subordinates with whom he doesn't see eye to eye," said an expert with knowledge of Communist Party affairs.

But if the situation is handled poorly, foreign investors could lose trust in China's financial system. In a sign that Beijing may have been stirred to action, Executive Vice Premier Han Zheng, who is responsible for economic policy, was dispatched to Shenzhen last weekend to inspect the situation there alongside top provincial officials including party secretary Li.

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