Ponzi schemes arising in China in the midst of economic downturn

Feb 02, 2016, 08:33 am

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By Hong Soon-do, Beijing correspondent, AsiaToday - In the midst of a tough economy, China is suffering from "Ponzi schemes". A Ponzi scheme is much like a pyramid scheme where an investment operation pays fake returns from money given by other new investors. As Chinese firms and individuals are having tough times due to lacking cash flow that hit China, pyramid schemes are arising. As a result, China's tough economy is likely to encounter more difficulties.

Taking into account the statements of Beijing's well-informed sources at Chinese economy on Monday, such assertion is not an exaggeration. According to them, the financial situation of the Chinese markets were not that bad only a few years ago. However, the situation changed dramatically since the second half of 2014, as the Chinese economy experienced downturn. Money has been tight, while financial sectors' interest rates have been at the bottom. Naturally, speculative funds that aimed for high interest rate flew into financial pyramid industry. Besides, illegal companies played an active part in the background.

In principle, it's hard to know how big the Chinese financial pyramid industry is now, since it's illegal. But we can roughly estimate number. The general opinion is that the industry accounts to at least 1 trillion yuan (KRW 180 trillion won). The number of victims are increasing as well.

Online financial pyramid platform Ezubao's business promotion site. Recently, this company has been caught by the authorities for allegedly conducting a 'ponzi scheme'./ Source from search engine Baidu

In the midst of arising pyramid schemes, financial pyramid platform Ezubao has been caught, confirming that the Chinese economy is in serious situation. Chinese authorities have arrested 21 people involved in an online finance scheme, which is suspected of defrauding 900,000 investors of about 50 billion yuan. Ding Ning, the chairman of holding firm Yucheng Group which launched Ezubao in 2014, was among those arrested. Ezubao promised to offer investors annual returns between 9 and 14.6 per cent - much higher than bank deposit rates.

On the basis of several circumstances, the Ezubao case is just the tip of the iceberg. However, the Chinese authorities have recently proposed a financial risk management as one of the top priorities for this year's economic assignment. So it's clear that more companies would be caught by the authorities. Besides, more companies are expected to go underground. In various respects, China's economy is going to face tough situations this year.

#Ponzi scheme #Ezubao #China #economic downturn #pyramid scheme 
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