'Village of BMWs' hit by loan pyramid collapse
By Claire Wang |
August 2, 2011, Tuesday
|
Print Edition
Print Edition
A LOAN shark scheme involving hundreds of millions of yuan has collapsed in an east China county, leaving villagers - including government officials - with huge losses after they pooled their cash to fund the venture.
About 95 percent of residents in Xinbian and Shiji villages in Sihong County, Jiangsu Province, had put up money since March.
Almost 100 loan sharks had gathered on Internet chatting tool QQ to pool their cash, The Beijing News reported yesterday.
In the pyramid scheme, friends and relatives put their money into a common fund. The person on top of the pyramid received the highest interest return - more than 30 percent - with rates decreasing from there to the bottom of the pyramid.
The more someone contributed to the fund, the higher their position in the pyramid.
"People were crazy for the scheme. Being a loan shark is more lucrative than any other business," said Zhang Ran, who owned a toy store.
Zhang put 2 million yuan (US$310,766) into the fund and was promised a 15 percent return on his investment.
The illegal business thrived in April and May and villagers spent the quick bucks funding lavish lifestyles.
Shiji Village was dubbed the "village of BMWs" as the luxury cars became a familiar sight on its streets.
Many government officials were also tempted by the promise of quick riches, said an unnamed official of the Sihong branch of the People's Bank of China, according to the report.
The money was ultimately lent to real estate developer Shi Guobao and several other people - each in debt of more than 100 million yuan.
Shi brought two land plots from Sihong government in April. However, he asked to have the contracts terminated in June, saying he could not afford them.
News that Shi was in financial trouble and the local government's pledge to crack down on the practice prompted villagers to ask for their money back. The pyramid collapsed in June.
The central bank has sent a team to investigate the case, an official surnamed Xu said.
Loan sharks were not protected by laws. If the loan can't be retrieved, the loss is borne by individuals who invested in the scheme, added Xu.
About 95 percent of residents in Xinbian and Shiji villages in Sihong County, Jiangsu Province, had put up money since March.
Almost 100 loan sharks had gathered on Internet chatting tool QQ to pool their cash, The Beijing News reported yesterday.
In the pyramid scheme, friends and relatives put their money into a common fund. The person on top of the pyramid received the highest interest return - more than 30 percent - with rates decreasing from there to the bottom of the pyramid.
The more someone contributed to the fund, the higher their position in the pyramid.
"People were crazy for the scheme. Being a loan shark is more lucrative than any other business," said Zhang Ran, who owned a toy store.
Zhang put 2 million yuan (US$310,766) into the fund and was promised a 15 percent return on his investment.
The illegal business thrived in April and May and villagers spent the quick bucks funding lavish lifestyles.
Shiji Village was dubbed the "village of BMWs" as the luxury cars became a familiar sight on its streets.
Many government officials were also tempted by the promise of quick riches, said an unnamed official of the Sihong branch of the People's Bank of China, according to the report.
The money was ultimately lent to real estate developer Shi Guobao and several other people - each in debt of more than 100 million yuan.
Shi brought two land plots from Sihong government in April. However, he asked to have the contracts terminated in June, saying he could not afford them.
News that Shi was in financial trouble and the local government's pledge to crack down on the practice prompted villagers to ask for their money back. The pyramid collapsed in June.
The central bank has sent a team to investigate the case, an official surnamed Xu said.
Loan sharks were not protected by laws. If the loan can't be retrieved, the loss is borne by individuals who invested in the scheme, added Xu.
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