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Ezubao, an online finance company in the Anhui province of China, was busted for operating a Ponzi scheme that swindled over $7.6 billion USD from investors. A Ponzi scheme is a type of scam that uses money from later investors to pay the original investors and owner of the scam. Scammers cleverly cause people to think the scheme is legit by giving some of the money to the initial investors.

According to Chinese officials, Ezubao had almost one million investors (lenders) and operated by offering mostly fake investment products. Chinese authorities have arrested 21 people allegedly involved in the scheme and shut down some of the company’s operations. A former Ezubao executive admitted to state-run news agency Xinhua that Ezubao is a Ponzi scheme. Ezubao officials could not be reached for comment.

China broadcasted footage of suitcases filled with cash being excavated from the ground. The hidden money was buried six meters underground on the outskirts of Hefei. Xinhua reported that it took Chinese investigators 20 hours to locate the buried cash.

Over the past few years, a new market in China’s financial industry has emerged; Peer-to-peer lending. This niche industry offers high returns to lenders and loans to target markets, mostly small businesses and individuals, that are often turned down by the established banking system.

Some fraudulent finance companies, including Ezubao, have preyed on individual lenders looking for a higher return on their money. Because of how many people were scammed and the large sum of money lost, it’s possible the people of China will begin to lose trust in the concept of peer-to-peer lending.

However, China has plans to crack down on P2P companies. In December 2015, China drafted new regulations that would prohibit peer-to-peer lending firms from accepting public deposits, guaranteeing success for investors, and using investor money to fund their own projects. P2P platforms will also have to designate upper limits on the number of loans a borrower can take in one deal. A borrower’s total outstanding loans must be within their risk management capability too.

Ezubao is just one of many examples of China working to protect their citizens from corruption. Although some may be concerned seeing these news stories, it’s a good thing that China is taking it seriously rather than allowing it to continue. With the new financial regulations, hopefully fewer people will fall victim to frauds such as the Ponzi scheme.

China has introduced many new regulations for businesses in the last year, so contact us to ensure your company is still in compliance with China law.

Please leave a comment or get in touch with your thoughts and your feedback.

You might also want to read some of my other blogs. A sample of recent blogs can be found here:

Global Guru Explains China’s Economy

AIIB – Similar Systems; Better Rules

Asia’s New Bank Offers Promise, Opportunity

China’s Battle Against Corruption Continues

ChAFTA Changes Australian-Chinese Tariff Rules

I am also offering a free excerpt of my book, which you can download here.


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