Was Evergrande’s wealth management division operating as a classic Ponzi scheme?
An investigation into Evergrande's wealth management products reveals how retail investor funds were diverted to cover corporate funding gaps rather than legitimate supply chain finance, ultimately collapsing when new sales could no longer sustain the cycle of repayment.
Evergrande’s financial advisers originally marketed their wealth management products as a form of supply chain finance. However, internal admissions from executives in Shenzhen later confirmed that this was no longer the case. Instead, the proceeds were used to bridge various funding gaps within the parent company, with some capital explicitly diverted to pay off previous investors.
The business model relied on a continuous influx of new capital to function. When sales plummeted, the scheme became unsustainable. Executives acknowledged that entities like Hubei Gangdun served merely as shell companies, and they explicitly discouraged any thorough examination of where the investor money was actually being deployed.
Source: Evergrande Wealth Management Products - A Ponzi Scheme?
