Underground banks shaken by death sentence

The news that Wu Ying, a billionaire businesswoman, was sentenced to death for running a Ponzi scheme sent a chill though Tu Yi and other entrepreneurs in Zhejiang province.

An intermediate court handed down the death sentence to the 29-year-old Wu in December after convicting her of taking 770 million yuan (HK$882 million) from 'depositors' in a loan-sharking scheme that promised high returns. She had been offering investors a guaranteed 80 per cent annual return then lent the money out to borrowers at even loftier rates.

The harsh judgment came even though Wu's investors did not lose any money.

But what the court called a scam and a Ponzi scheme - the precise term on the mainland is illegal fund-raising - business people such as Tu call an underground bank. And they are concerned that such a draconian sentence will drive the institutions further underground, making financing nearly impossible for private businesses.

'Her business model is commonly seen here in Zhejiang,' said Tu. 'Underground bank loans play a vital role in boosting Zhejiang's private business. To be honest, loans from the underground banks provided a lifeline for my business.'

According to National Business Daily, about 600 billion yuan flows through Zhejiang's underground banking system.

'My question is the death sentence: did Wu Ying really infringe upon the law by raising the funds and offering loans?' said Tu. 'It is obvious that her way of raising money can be commonly seen in many places in Zhejiang. Everybody took it for granted that the business was okay.'