Financial scams explode in China

Hua Mulan

Staff member

China hit by financial scam 'epidemic'

By Virginia Harrison, Business reporter, Singapore
19 September 2017


Pyramid schemes
Pyramid schemes are flourishing in parts of the country where education levels are low.

The schemes prey on the vulnerable, typically young people and the elderly, with the promise of employment or lucrative returns for direct sales of products like cosmetics or health supplements.

Victims are assured of great fortune if they recruit more investors into the operation.

"They give the illusion to naive people that they can get rich quickly without risk," says Ms Ho, who investigates financial systems and advises on China.

Peer-to-peer lending and virtual currencies have fuelled the spread of other investing scams, luring victims with little financial knowledge.....

Social problem
It's a social problem the government is fighting to contain.

Victor Shih, associate professor in political economy and China expert at the University of California San Diego, says a combination of factors have spurred the spread of these scams.

"The rapid proliferation of pyramid schemes is caused by high growth in living costs, especially housing costs, which enticed many to look for higher returns - and previously light regulation at the local level," Prof Shih says.

Under pressure to grow their economies, local governments had in the past endorsed some dubious investment schemes - without properly understanding them - on the belief they would deliver strong returns and spur growth.

"Pyramid schemes were [one popular idea] which they thought could keep driving economic growth," says Prof Ning Zhu, deputy dean of the National Institute of Financial Research at Tsinghua University.

"I don't think this is happening any more," he adds.

Government crackdown
Authorities are paying more attention.

The government acknowledges the number of big pyramid scheme cases has shot up, and that organisers are using various channels to lure and cheat unsuspecting Chinese out of their money and assets.

"Pyramid schemes directly harm the market's economic order and social harmony and stability," Beijing said in a recent statement.

China is carrying out three months of co-ordinated action to investigate and clean-up the practice of pyramid selling.

As part of the crackdown, more than 100 arrests were made in southern China last month, targeting individuals over their suspected links to a 360m yuan (£42.3m) pyramid scheme.

Authorities had at least one major bust last year - breaking up a 50bn yuan online finance scam which was suspected of defrauding 900,000 investors.

And while there may be more reaction from the government - the number of pyramid schemes investigated in 2016 jumped 19% on the previous year - the tactics of the con artists at work in China appear to be getting more insidious......