Financial fraud mounts in China

Government sets up efforts to nip scams in the bud

The rapid development of Internet finance in China in recent years has provided soil for financial fraud, which in turn forced the central government to take major steps in tightening financial supervision.

A recent case involving financial fraud took place in Haikou, South China's Hainan Province. According to a report in the Hainan Daily on July 17, local police have frozen 139 million yuan ($20.6 million) collected by the Kuayaou Company, which carried out a far-reaching pyramid selling scam by trading a virtual currency called "ya'ou coin."

Another case involved the collapse of Vanuatu-based foreign currency trading website igofx.com after the website's agent in China ran away with about 30 billion yuan from 400,000 domestic investors, according to media reports.

"The number of domestic financial fraud cases is rising in general in recent years as far as I know," Chen Tao, a lawyer at Beijing-based Tahota Law Firm, told the Global Times on Monday.

Illegal fund-raising cases soared to a historical high of about 6,000 in 2015, but fell to about 5,200 in 2016, according to domestic news portal china.com.cn in April.

Frozen out

He Xiaofang, a Zhejiang-based trader of ya'ou coin provided by Kuayaou Company, told the Global Times on Monday that it never entered his mind that the trading was illegal, considering that trading the virtual coin was just like trading stocks and the yields were not high (about 10 to 20 percent).

According to him, investors in ya'ou coin come from all over the country, with the majority from East China's Jiangsu, Zhejiang and Shandong provinces. They have invested from a few thousand to tens of millions of yuan, which is all frozen currently.

He himself has about 800,000 yuan frozen in the case. "That money was borrowed from friends and banks. Now I can't even pay my credit card bill," he told the Global Times.

He also said that he always followed the market of virtual coins. "I have not invested in bitcoin yet, but I am watching it very closely."

The contact number on Kuayaou's official website was disconnected on Monday.

According to Chen, the rise of Internet finance in China has spawned novel forms of trading, and many of these forms, although not explicitly forbidden by the law, run counter to China's financial system.

"The chances of the investors getting all their money back in a financial fraud case are very small," he said.

Coordinated management

Wu Hong, director of the School of Economic Law at the East China University of Political Science and Law, said that in terms of virtual currency trading, China's financial regulators have repeatedly stated that it is not under the umbrella of the law. However, this doesn't stop some investors from speculation. He said that China since the 1990s has prohibited trading of foreign currencies on foreign platforms.

According to Wu, new forms of Internet finance have been springing up in recent years. "Sometimes local governments get confused by those forms and tolerate them in the beginning, but by the time government intervention sets in, large sums of investment capital are already involved," he told the Global Times on Monday, adding that it is hard to include all the forms of financial fraud in the law because of the difficulty of keeping up with the changing forms of financial speculation.

The Chinese government has stepped up continuous efforts to combat illegal financial trading. At the recent National Financial Work Conference, the government launched a new committee under the State Council, China's cabinet, with tasks including refining risk monitoring and early intervention mechanisms as well as addressing supervisory shortcomings.

"In the past, traditional financial industries were separately managed by different departments according to the nature of their business, but that has left a regulatory gap for new forms of the financial business, particularly Internet finance. Now with an institution in charge of supervising all lines of financial activities, it can nip different forms of financial fraud in the bud," Wu told the Global Times.