Submitted by Israel's Financial Expert
China’s Shark Loan Ponzi Finance- As Ponzi Schemes Collapse the Chinese Government Fears Civil Unrest
Local governmental officials that are demanded from the government
to produce double digit GDP growth numbers give real estate developers
permits to build housing projects in return for bribes. They also get
bribes in return for allowing the shark loan companies to operate under
their jurisdiction. Some of them are active partners in shark loan
businesses. For example, a party secretary of legal affairs, that
controls the public security bureau, which is a court and prosecutor
division of government in Yanking city, in She Kiang province tired to
run abroad using a passport in 2009 after he found out he can’t repay
60million Yuan. Every scheme has a ring leader whose job is to collect
money from all the participants in the ponzi scheme. When some of these
ponzi schemes blow up, the party leaders always get bailed out first,
and some even ask local business owners to lend them money, and then
bail out their own personal fund. After that the ring leader turns
himself in and gets protection from the local government.
Most of the funds that are collected in this classic ponzi finance
go to local land purchases and real estate development. Part of the
funds are used in order to pay back the rolling loan. The short term
interest rate in this black market is very high and ranges between
20%-150% annual rate. The sources of the ponzi funds are diverse, as
ordinary citizens, banks with corrupted bank officials, and state
enterprises play the game.
This month, another Shark Loan Ponzi Scheme Collapsed in Huang Qiao Town In Jiangshu Province
China daily economic news reported:
Huang Qiao Town which is located in Taixing County, Jiang Shu Province
is known as “No 1 town in North Jiangshu” According to the article, a
few months back, expensive cars were roaming over the streets. But now
after the collapse of a giant ponzi scheme supported by 9 so called
“Mark Organizations” (local name for shark loan ponzi schemes), many
cloth shops, and barber shops (in China, many so called barber shops
are in fact brothels) are closed, and the expensive cars are gone. Town
residents are posting their shops and cars for sale to pay back shark
The collapse of this ponzi scheme at the town level, is a sign that
even the bottom part of the hierarchy of the Chinese society was
exposed to these schemes. This exposes the pervasivness and seriousness
of the shark loan problem. more and more local participated in this get
rich quick frenzy since normal business profits wages simply are not
enough to make ends meat .
The collapse was triggered by the actions of one of the female ring
leaders that turned herself in after she found out she can’t afford to
pay the high interest rate anymore.
Though all the “ Mark Organizations’ are run by independent ring
leaders, their funds are connected . As a result, after the exposure of
her failure, 9 ring leaders are now under police custody. The locals
even have a song for this shark loan frenzy:
People die for money
While birds die for food
They cracked down on the loan sharks
And now tens of thousands are in panic.
According to reports, 80 percent of families in Huang Qiao were
involved, and major ring leaders include government officials and their
relatives, housewives, teachers, shop owners, home decorators, and
barber shop owners (a nickname for brothel owners)
Some interesting anecdotes regarding this scheme:
1. As Local houses were all sold out, the ring leaders went to
Shanghai, Nanjing, and Jiangyin to “flip flop” real estate(Buy and sell
real estate in less than 1 months in order to make a quick profit)
2 One ring leaders has 19 residence estate all over china, with total value of 20 million
3 Expensive cars roaming the street
4 Gold purchases
5 local Gambling, drug, prostitute flourish.
6. The bidding procedure for “Mark Organization meeting”:
“Mark Organization Meeting” is basically an auction. During the
meeting, the participating bidders will compete by promising high
interest rates. The final winner is the man who offers the highest
interest rate. He then will use the collected funds to speculate in the
real estate market, or lend the money to real estate developers, home
buyers and basically anyone in need for a loan. One everything works
out, the local get their money back with the promised interest…
This a link to an audio of a recoding made of such an auction.
You can read more (with the use of google translate) at this link
of a local Huang Qiao Internet chat room that as a ponzi scheme topic.
Please notice that news coverage is strictly controlled and censored,
so not everything that is quoted in this article will appear in the
You can read even more at this Huang Qiao Local forum.
Many posts have been deleted, but even from what is left there is
evidence of , local riots and gathering, demanding government help.
From this thread,
that was written in Feb 2010, it is clear that some residents were
worried for a while. It asks the government to crack down on the loan
sharks, but apparently no action was taken. To understand how pervasive
these shark loan schemes are in Huang Qiao, please read this local
internet BBS forum poll, were 44 reported that they participated in the
ponzi schemes by themselves. The pool mentioned that only those who
directly participated in the “ Mark Organization Meeting” by themselves
shall say yes, if only relative and family member participate, they
shall count as no.
Big Danger of Civil Unrest
The first sign was a murder in “Tai Xing”
( Huangqiao is a town of Tai Xing city, the murder’s home town).
Apperantly, the owner of the Kindergarden were massacre occoured
participated in a ponzi scheme.
The locals in this province are outraged and they are trying to
organize protests and riots against the government and the ring leaders
of the ponzi schemes. Many posts in the forums are attempts by locals
to organize demonstrations. Since the internet is heavily censored in
China, many victims of the schemes are posting these letters on every
street corner in the town. They demand that the government will take
action, and that the ring leaders will be put in jail. They of course
demand their money back as well…
The ring leaders are trying to calm things downs, by handing out letters to local residents and posting them on street corners.
Bellow you can see the letters that were written by the residents and the ring leaders.
The local government fears civil unrest, and has posted this warning on every street corner.
A translation of the letter:
To the residents of Huang Qiao
Currently, the collapse of the fund chain has become a hot topic of all
over town. A small minority of people with the intention of trying to
disturb social stability, are stirring up the water, and are using the
governments name to start rumors in order achieve personal benefits. In
order to clarify the truth, the town government issues this open letter:
1. Huang Qiao Shark Loan ( Mark Organization Meeting” ) is a private
matter, it is illegal, and the interest is not protected by law
2. People who participate need to expect to lose money.
3. All Mark Organization Meetings will be closed and all the debts will
be settled peacefully, by negotiation, in order to minimize the loss.
4. The police will get involved in certain Mark Organization meeting, when the ring leaders are reluctant to pay
5. The public security agency will harshly punish those who are trying
to stir up social unrest, spread rumors, cause “muddy water”, and make
trouble for the government and social stability.
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