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    Greater China
     Jan 12, 2008
Ants and pyramids: China scams abound
By Kent Ewing

HONG KONG - When Chinese officials deliver their reports on the country's stunning economic growth, they fail to mention the proliferation of scam artists who have jumped on the capitalist bandwagon. There is no way of knowing how many scams go down daily in China because state media do not find such stories to be good advertising for a nation that will be hosting this summer's Olympic Games. But the number is no doubt staggering, and some scams are just too big to be ignored.

Take, for example, one of the more recent cases of swindling extraordinaire. A well-known entrepreneur in northeastern Liaoning

province (apparently the center for such Ponzi schemes) convinced more than a million people - mostly farmers, retirees and the unemployed - to invest their savings in an ant-breeding venture that has left many of them penniless. The scheme - run by the Yilishen Tianxi Group, chaired by Wang Fengyou - worked like this: a 10,000 yuan (US$1,375) deposit bought investors a box of ants, which they were then required to provide with food and water until death - that's 90 days after birth for the average ant. A representative of Yilishen would then collect the ant corpses and take them to one of the firm's factories, where they were used to produce health products that could allegedly cure anything from arthritis to impotence.

Investors were guaranteed a profit of US$447 after only 14 months and an annual rate of return as high as 32.5%. The scam may seem impossible outside China, where ant products are largely unheard of, but within the country ants are believed to carry healing properties that can increase physical stamina, prolong youth, heighten immunity and increase sexual potency. So, to the greedy and the ignorant, the scheme appeared to be a good bet. For a while, it even seemed to work for all concerned, but when product sales slumped and the company started using investors' deposits as income, Yilishen had crossed the line into illegality.

In the end, the scheme collapsed, Yilishen went bankrupt and investors had nowhere to turn. The company is now being liquidated. Wang was arrested last month, but the charge against him is not fraud; rather, he is being held for "instigating social unrest" after thousands of out-of-pocket investors, demanding compensation for their losses, stormed the provincial government offices in the capital of Shenyang last November. The demonstration reportedly turned violent, and police were called in to quell the riot.

According to the official Xinhua News Agency, police allege that the angry demonstration actually started at Yilishen's offices, but then Wang paid employees, including company executives, to organize a protest against the government instead. Why he would do this is not clear from the Xinhua report, but it is clear that he is now in jail, his reputation in tatters, and his once successful company is no more.

Wang's ant-breeding scheme had been running for eight years before it collapsed, and no one in officialdom bothered to call him out - not even after the mastermind of an almost identical scheme was sentenced to death last year in a Liaoning court. Wang Zhendong was found guilty of duping more than 10,000 "ant farmers" out of $390 million between 2002 and 2004 with the promise of a return of up to 60% on their investment. During that same period, police in Liaoning say, they shut down 16 companies engaged in fraudulent schemes involving nearly $1.4 billion.

Such scams are not peculiar to Liaoning, however. Xinhua reports that between July 15 and August 16 last year, authorities discovered 600 fraudulent schemes in 14 provinces and cities, arresting 3,300 people. And, again, those 600 scams represent only what has been reported. Multiply by 10 or more, and China becomes a swindler's dreamland.

One big reason so many scams go undetected is the complicity of notoriously corrupt local officials. For a long time, Wang Fengyou's case smelled of such a partnership but, finally, the investors' violent protest forced the hand of authorities.

Wang's rags-to-riches story has become a familiar theme in China. He was born into a poor farming family in the village of Fushun in Liaoning, and his education did not go beyond middle school. But his humble beginnings did not curb his ambition. After a number of failed business ventures in his home province, he moved in 1993 to the capital city of Guangzhou in wealthy southern Guangdong province. There he started a taxi business that he sold five years later for a handsome profit. This allowed him to move back to Liaoning and found Shenyang Dingxi Technology, the starting point for his ant-breeding scheme. In 1999, Wang established Yilishen, a highly successful joint venture involving nine different companies invested in health products and property.

Along the way to wealth and success, Wang created a formidable public relations machine, cultivated a reputation as a philanthropist and, of course, made a wide array of political and social connections, known as guanxi in China. Yilishen lured prospective investors by publishing glowing testimonies from successful ant breeders who vowed that they had made huge profits while staying at home. The company also regularly advertised on CCTV, China's national television network, and boasted endorsements from celebrities such as the country's top comedian, Zhao Benshan. Zhao may now also be a victim of the Yilishen scandal as rumors fly that he will be banned from performing in CCTV's signature program, the Lunar New Year Gala, which features China's most popular celebrities.

Wang also burnished his and his company's image by donating nearly $1.4 million to public causes. So it was no surprise when, in 2006, the Ministry of Commerce granted his company a coveted direct-selling license. That license came two years after the US Food and Drug Administration had prohibited the import of Yilishen products, which the agency deemed to have zero value as health products.

There seem to be two morals to this story. If you are trying to read the tolerance of provincial governments for Ponzi schemes, the message appears to be: scam as much as you like as long as you don't cause a riot. But there is also a bigger lesson for the Chinese masses, many of whom have been so shamelessly cheated: ignorance and greed are a bad combination.

Kent Ewing is a teacher and writer at Hong Kong International School. He can be reached at kewing@hkis.edu.hk.

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