China set for massive crackdown on illegal fund-raising after spate of financial crimes

Inter-agency action to see overhaul of sector, monitoring system to be set up to intercept illicit activities, among other measures

PUBLISHED : Wednesday, 27 April, 2016, 11:50pm
UPDATED : Wednesday, 27 April, 2016, 11:50pm

Chinese authorities will launch a huge crackdown on illegal fund-raising, including in the burgeoning e-finance sector, in light of a series of crimes last year that involved record amounts of money.

At a multi-agency meeting attended by 14 ministries and regulators on Wednesday, Beijing said the number of illegal fundraising cases jumped 71 per cent in 2015.

The money and people involved rose 57 and 120 per cent respectively – both historic highs. Cases involving over 100 million yuan (HK$119 million) increased 44 per cent from a year ago.

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The authorities would jointly overhaul the sector in the second half of the year to assess risk exposure in private asset management, peer-to-peer (P2P) lending, rural cooperatives, private equity and other financing activities.

A three-month crackdown on illegal fundraising advertisements would be renewed next month, and an early-warning system set up to monitor private financing to identify risks and halt illegal ­activities.

The authorities have already stopped registering new financing firms. Third-party payment firms have also been banned from opening payment accounts for financial institutions, closing the door for illegal platforms to siphon capital through third-party online payments.

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Swindlers have been taking advantage of the e-financing boom as regulations struggle to catch up. Ezubao, once China’s biggest P2P online lending firm, collected more than 58.2 billion yuan from over 900,000 investors in less than two years, the ­Supreme People’s Procuratorate said at the meeting.

The firm, which promised investors big returns, has seen at least 21 executives, including its boss Ding Ning, arrested. Ding ­allegedly embezzled over 1.5 ­billion yuan, spending lavishly on himself, his wife, lover and staff.

In a similar case last year, hundreds of investors protested in Beijing and Shanghai, saying they lost US$6 billion to a Fanya Metals Exchange investment product that promised them up to 14 per cent annual returns and the flexibility of depositing and withdrawing funds at will.

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Police data showed that the annual number of illegal fund-raising cases had jumped to more than 10,000 from 2,000-3,000 in previous years. In just the first quarter this year, over 2,300 cases were filed, with more cases involving more than 100 million yuan.

“The recent bout of illegal fundraising cases has triggered concerns about social stability and badly hit the e-finance sector,” said Shi Pengfeng, CEO of, a portal that tracks the P2P industry.

“We see the clean-up as necessary as illegal fund-raising ... has defrauded the public and cast a shadow on legal players.”