In early December, Ding Ning and his girlfriend Zhang Min were planning to make a run for it.
The couple had come to the end of the road with the massive fraud they were running through P2P lender Ezubo, which bilked some 900,000 people out money making it the largest ponzi scheme by number of victims in history.
Ultimately, the amount of money coming in was no longer sufficient to cover interest payments to existing clients. The pair attempted to bury the evidence in the backyard (literally) but police, using two excavators, managed to dig up 80 bags of documents buried 20 feet underground.
As a reminder, the company lured investors in with the promise of returns between 9% and 14%. In the end, nearly all of the “projects” featured on the site turned out to be fictitious.
We documented the story on Monday when we warned that this was just the type of event that could serve as the straw that breaks the camel’s back for a populace that’s already on edge thanks to a horrendous equity market meltdown and worries about the prospects for China’s currency and economy. Sure enough, the very next day, a bulletin began to make the rounds on Chinese social media calling for defrauded Chinese to “rise up” and stage nationwide protests until their money is refunded. The demonstrations would be called the “rights protection movement.”
“So stay tuned, because judging from the tone of the ‘rights protection movement’ bulletin the villagers are restless in China,” we said, before noting that Ezubo is probably just one of many P2P frauds in the country given that by November, there were over 3,600 such platforms in operation.
Bloomberg is out with a bit of color on China’s internet financing industry which was apparently allowed to flourish as Beijing attempted to figure out how to rein in shadow banking without choking off credit growth as the economy decelerated.
“China’s plan in allowing online lenders to flourish was to allow additional ways for small business to get financing rather than turn to back-alley shadow bankers — a shady world that was flourishing outside of government control when P2P lending began taking off in China in 2012 and only 3 percent of China’s 42 million small business owners could get bank loans,” Bloomberg wrote on Wednesday. “Online lending was a way for the government to encourage further economic stimulus in an economy growing at the slowest rate in a quarter century, and in theory it should be more transparent to regulators because it uses a real-time digital ledger of accounts.”
Yes, “in theory.” But in reality, these outfits are just as opaque as WMPs, trusts, channel loans, and the laundry list of other vehicles China uses to keep the credit impulse alive.
“I think the government allowed this all to happen because it was desperate to pump money into the private economy as all the other slowdowns started to happen,” Steve Dickinson, a Qingdao-based lawyer for Seattle firm Harris Moure PLLC, told Bloomberg by e-mail. “It is likely that the regulators at the top simply turned a blind eye to the risks in the desperate hope that this kind of lending vehicle would get them through a rough patch.”
“It was just a matter of time before we saw something this big keel over,” Zennon Kapron, managing director of Kapronasia, remarked.
And that means it’s “just a matter of time” before it happens again. Indeed, out of the 3,600 P2P operations in China, around 1,000 of them are deemed “problematic,” the China Banking Regulatory Commission says.
According to Xinhua, transactions on Chinese P2P sites topped $150 billion in 2015 up nearly 300% from the previous year. Sensing trouble, the CBRC published draft rules in December designed to control risk. “Due to the lack of necessary regulation, many P2P platforms play in the area between legal and illegal, using Internet concepts to brand themselves, fraudulent advertising and illegal deposit-taking to hurt public interest,” the body said.
“The harm is obvious. It’s going to damage financial reforms, cause social unrest and destabilize the regime to some extent,” Yang Dong, vice-dean at Renmin Law School and an expert on finance and securities law told Reuters this week.
We close with the following rather inauspicious headline from Bloomberg which hit the wires Thursday afternoon:
via Zero Hedge http://ift.tt/1THmnqt Tyler Durden