News / Asia

    New 'Private Equity' Scams Target China Retail Investors

    A man cycles past security personnel, and uniformed and plainclothes police, who are standing outside the entrance to a government building where petitioners congregate daily to protest private equity scams, in central Beijing, October 22, 2012.A man cycles past security personnel, and uniformed and plainclothes police, who are standing outside the entrance to a government building where petitioners congregate daily to protest private equity scams, in central Beijing, October 22, 2012.
    x
    A man cycles past security personnel, and uniformed and plainclothes police, who are standing outside the entrance to a government building where petitioners congregate daily to protest private equity scams, in central Beijing, October 22, 2012.
    A man cycles past security personnel, and uniformed and plainclothes police, who are standing outside the entrance to a government building where petitioners congregate daily to protest private equity scams, in central Beijing, October 22, 2012.
    Reuters
    Thousands of retail investors in the Chinese city of Tianjin say they were tricked out of more than $500 million by sellers of illegal wealth management products. It's part of a growing problem stemming from China's rush to develop its private equity sector.

    Scam private equity businesses mushroomed in China after a government drive to promote the industry in 2009, leading to a flood of licenses for new firms that were issued without proper regulation.

    While private equity is generally the preserve of a small pool of wealthy individuals or institutions, these scams have targeted ordinary small investors, leaving thousands angry, and in some cases taking to the streets to protest.

    Interviews carried out by Reuters with dozens of victims across five cities paint a picture of fraudulent private equity schemes that is much wider than official accounts or local media reports have portrayed previously.

    "It's a huge problem in China," said Long Zan, a sales consultant at China Marketing Association, adding he has seen many salespeople recently selling what they claim to be private equity products, many of which are illegal. "What has been uncovered is just a tip of the iceberg."

    At the heart of the issue is the lack of investment options given to retail investors.

    China's tight capital controls limit overseas investments, while a ban on property speculation and a sluggish stock market have made many look elsewhere for returns. The huge profits reaped by legitimate private equity operators in China by taking companies public amid booming IPO markets in recent years also lured investors to fraudulent schemes.

    Latest official data shows 10,000 cases of illegal fundraisings - which also include lending and other financial activities - were uncovered between 2005-10, with combined losses of around 100 billion yuan [$16 billion]. While the government has not disclosed detailed data, Reuters calculations based on victims' accounts, indicate losses of at least 100 billion yuan from private equity scams alone.

    Demanding compensation

    In Tianjin, in the north, more than 14,000 people submitted a petition to the central government demanding compensation for losing a combined 3.4 billion yuan [$544.8 million] from scams in the city. Reuters was shown a copy of the letter in October.

    "Frauds of this scale are not a problem of any one company... the government has inescapable responsibilities," said the letter, sent to the Tianjin government, as well as to the State Council, China's cabinet, around July last year. "The current situation is the result of lax government supervision."

    The authorities so far have blamed investors for their own greed and misjudgment. An official at the Tianjin government in charge of dealing with illegal fundraising said investors lost money because they were blinded by the promise of stellar returns.

    Thousands of private equity fraud victims have taken to the streets in Beijing, Tianjin and Nanjing, demanding government compensation for their losses. In some cases, riot police had to be called in to control the scene.

    "I lost everything,'' said Chen Ende, a former real estate agent who lost nearly 3 million yuan, including some money he borrowed from friends, in a private equity scam. "The government must pay."

    Confidence dented

    Confidence in Chinese wealth management products has already been dented by problems in the ballooning shadow banking sector. In one example, in December, a product sold through Hua Xia Bank failed to pay its annualized return as promised, sparking protests outside the bank's Shanghai branch.

    But while those cases involved legal investment products that went bad, the private equity scams generally involve the selling of products that breach rules intended to restrict participation in the sector - such as a requirement that PE funds should have no more than 200 investors and that the minimum investment should be at least 2 million yuan.

    China Marketing Association's Long estimates there are at least 5,000 purported private equity schemes currently operating illegally across China.

    The Beijing Private Equity Association, an industry group, was so concerned that it warned in October that illegal fundraisers masquerading as private equity firms had "seriously endangered social and financial stability'' as it launched a campaign to educate investors about PE.

    Calls to the firms' listed telephone numbers could not be connected.

    You May Like

    Native Americans Ask: What About Our Water Supply?

    They say they have been facing a dangerous water contaminant for decades - uranium – but the problem has received far less attention than water contamination by lead in Flint, Michigan

    Pakistan's President Urges Nation Not to Celebrate Valentine's Day

    Mamnoon Hussain criticizes Valentine's Day, which falls on Sunday this year, as a Western import that threatens to undermine the Islamic values of Pakistan

    Mother of IS Supporter: Son Was Peaceful, 'Role Model'

    Somali-American Abdirizak Mohamed Warsame pleaded guilty Thursday to charges of conspiring to provide material support to Islamic State militants

    This forum has been closed.
    Comments
         
    There are no comments in this forum. Be first and add one

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Two-thirds of World Faces Water Shortagei
    X
    February 12, 2016 7:31 PM
    Four billion people — or two out of every three on the planet — do not have enough water to meet their basic needs. That is far greater than previously thought, according to a new study that presents a more accurate picture of the problem. As VOA's Rosanne Skirble reports, the findings will help policymakers and the public craft solutions to address the threat.
    Video

    Video Two-thirds of World Faces Water Shortage

    Four billion people — or two out of every three on the planet — do not have enough water to meet their basic needs. That is far greater than previously thought, according to a new study that presents a more accurate picture of the problem. As VOA's Rosanne Skirble reports, the findings will help policymakers and the public craft solutions to address the threat.
    Video

    Video Gateway to Mecca: Historical Old Jeddah

    Local leader Sami Nawar's family has been in the Old City of Jeddah for hundreds of years and takes us on a tour of this ancient route to Mecca, also believed to be the final resting place of Adam's wife, Eve.
    Video

    Video New Technology Aims to Bring Election Transparency to Uganda

    A team of recent graduates from Uganda’s Makerere University has created a mobile application designed to help monitor elections and expose possible rigging. The developers say the app, called E-Poll, will make Uganda's democratic process fairer. From Kampala, VOA's Serginho Roosblad reports.
    Video

    Video As Refugees Perish, Greek Graveyards Fill

    Aid workers on the Greek island of Lesbos say they are struggling to bury the increasing number of bodies of refugees that have been recovered or washed up ashore in recent months.  The graveyards are all full, they say, yet as tens of thousands of people clamor to get out of Syria, it is clear refugees will still be coming in record numbers. For VOA, Hamada Elrasam reports from Lesbos, Greece.
    Video

    Video Russia Bristles at NATO Expansion in E. Europe

    Russian Foreign Minister Sergei Lavrov is meeting Friday with the head of NATO after the Western military alliance and the United States announced plans for the biggest military build-up in Europe since the Cold War. Russia has called NATO's moves a threat to stability in Europe. But NATO says the troop rotations and equipment are aimed at reassuring allies concerned about Russia as VOA's Daniel Schearf reports from Moscow.
    Video

    Video To Fight Zika, Scientists Target Mosquitoes

    Mosquitoes strike again. The Zika virus outbreak is just the latest headline-grabbing epidemic carried by these biting pests, but researchers are fighting back with new ways to control them. VOA's Steve Baragona takes a look.
    Video

    Video Mosul Refugees Talk About Life Under IS

    A top U.S. intelligence official told Congress this week that a planned Iraqi-led operation to re-take the city of Mosul from Islamic State militants is unlikely to take place this year. IS took over the city in June 2014, and for the past year and a half, Mosul residents have been held captive under its rule. VOA's Zana Omar talked to some families who managed to escape. Bronwyn Benito narrates his report.
    Video

    Video Scientists Make Progress Toward Better Diabetes Treatment, Cure

    Scientists at two of the top U.S. universities say they have made significant advances in their quest to find a more efficient treatment for diabetes and eventually a cure. According to the International Diabetes Federation, the disease affects more than 370 million people worldwide. VOA’s George Putic reports.
    Video

    Video NATO to Target Migrant Smugglers

    NATO has announced plans to send warships to the Aegean Sea to target migrant smugglers in the alliance's most direct intervention so far since a wave of people began trying to reach European shores.
    Video

    Video Russia's Catholics, Orthodox Hopeful on Historic Pope-Patriarch Meeting

    Russia's Catholic minority has welcomed an historic first meeting Friday in Cuba between the Pope and the Patriarch of Russia's dominant Orthodox Church. The Orthodox Church split with Rome in 1054 and analysts say politics, both church and state, have been driving the relationship in the centuries since. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Used Books Get a New Life on the Streets of Lagos

    Used booksellers are importing books from abroad and selling them on the streets of Africa's largest city. What‘s popular with readers may surprise you. Chris Stein reports from Lagos.
    Video

    Video After NH Primaries All Eyes on South Carolina

    After Tuesday's primary in New Hampshire, US presidential candidates swiftly turned to the next election coming up in South Carolina. The so-called “first-in-the-South” poll may help further narrow down the field of candidates. Zlatica Hoke reports.
    Video

    Video Smartphone Helps Grow Vegetables

    One day, you may be using your smartphone to grow your vegetables. A Taipei-based company has developed a farm cube — a small, enclosed ecosystem designed to grow plants indoors. The environment inside is automatically adjusted by the cube, but it can also be controlled through an app. VOA's Deborah Block has more on the gardening system.
    Video

    Video Exhibit Turns da Vinci’s Drawings Into Real Objects

    In addition to being a successful artist, Renaissance genius Leonardo da Vinci designed many practical machines, some of which are still in use today, although in different forms. But a number of his projects were never realized — until today. VOA’s George Putic reports.