npr | Zhongjin is one of three Chinese financial firms to collapse in the
past year. In February, Ezubao, a peer-to-peer lending company, was
exposed as a $7 billion Ponzi scheme. Police took over the headquarters
of the Fanya Metal Exchange, a trading platform for nonferrous metals,
late in 2015 and are investigating an alleged multibillion dollar Ponzi
scheme involving more than 200,000 investors.
Wealth management
firms like Zhongjin emerged in China in the mid-2000s to provide more
financing to private businesses and better returns for Chinese investors
frustrated by low interest rates at government banks. But as China's
economy has weakened in recent years, lending has continued to boom.
Logan Wright, who oversees China markets research for the Rhodium Group in New York, says that's a recipe for trouble.
"You have a slowing real economy, growing financial services sector
and as a result, there's an increasing use of speculative strategies and
riskier and riskier instruments and in some cases, outright Ponzi"
schemes, Wright says.
Shanghai now has more than 100,000 wealth
management companies and the country has more than a million, says Iris
Pang, a senior economist for greater China with Natixis, a French investment bank. She says China's government hasn't been able to keep up with the explosion in the number of firms.
"The wealth management sector is very new in China," she says. "The regulations are loose and not very well defined."
Customers
say they invested in Zhongjin because there weren't better options,
given last year's collapse of China's stock markets, a real estate
property bubble and capital controls that severely limit how much money
Chinese can move overseas.
Zhongjin's investors say police have
told them that only 10 percent of their deposits remain. The company's
collapse has wrought havoc on families who benefited from China's three
decades of extraordinary growth, but now are at risk of losing most of
their savings.
One investor, who asked not to be named, said
her family is furious with her for persuading them to invest. She has
since offered to divorce her husband. She has no money and is down to
eating one meal a day.
"I have a family problem, a financial
problem and survival problem," she says, weeping. "Every time I take a
bite of food, I feel very guilty. I feel I am wasting money."
