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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