China has so many financial forums these days that a decent speaker can make quite a living – the China Economic Times reports that top economists can charge $30,000 for two hours of chat. Perhaps that’s why several specialists – including Fan Gang, an advisor to the People’s Bank of China – gathered at a major P2P lending conference at the Great Hall of the People in Tiananmen Square last year.
The forum’s sponsor Ezubao was a P2P broker founded the previous July under the Yucheng Group. Two months later, it would bankroll another summit with the Economic Observer, where Zhang Min, one of its co-founders, was celebrated as “The Internet Finance Person of the Year”.
Ezubao was an important client for the state media firms as well. According to the China Economic Journal, it was a big spender for broadcaster CCTV, buying up chunks of its advertising airtime last year. Reportedly it paid more than Rmb30 million ($4.6 million) for a 20-second primetime slot just before CCTV’s key evening simulcast, and the channel’s Zhou Tao was one of the hosts for Ezubao’s event at the Great Hall of the People last year.
P2P lending has been one of the quickest growing industries in China. According to Xinhua, the market grew from Rmb252 billion in funds in 2014 to Rmb982 billion last year. The number of platforms has more than doubled to 2,595, and one of the larger players Lufax, backed by Ping An Insurance, is planning a $1 billion IPO, which Bloomberg says would likely value it at $15 billion.
Ezubao’s use of state media in its marketing strategy added an air of authority to its offering, with advertisements on CCTV that promised “risk-free returns of up to 9% to 14% every year”.
Does that sound too good to be true? Of course it was.
“Ezubao was nothing but a Ponzi scheme,” an apologetic Zhang Min admitted this month.
The reigning “Internet Finance Person of the Year” was no longer basking in the glory. Instead, she was back at the state broadcaster to confess her wrongdoings.
Xinhua has reported that police have found substantial evidence that the P2P broker cheated about 900,000 investors out of more than Rmb50 billion. According to the televised confession of another senior executive, up to 95% of the investment schemes on the company’s online platform were fake.
Ezubao was paying massive amounts in commissions to third parties to lure new investment, which partly explains its rapid growth. But the scheme began to fall apart late last year when redemptions soared and it ran short of cash.
So where has the money gone? CCTV said some luckier investors have been repaid, but much of the funds raised went straight into the pockets of senior executives.
According to Zhang, about 80 Ezubao staff made more than Rmb1 million a year. Zhang herself got a hefty Rmb550 million cash bonus, a luxury villa and a fleet of sports cars.
Not only did Ezubao spend big to promote its image on state TV, its chairman Ding Ning had also insisted that his key staff looked good.
“Ding Ning requires all the staff in his office to wear Louis Vuitton, Gucci, Chanel, together with jewellery. He said this represents the company well. His staff once emptied the shelves of several LV and Hermès shops,” Zhang told the broadcaster.
Xinhua said police are still looking into the case. “Attempting to destroy evidence, the suspects even packed about 1,200 volumes of financial documents into 80 travel bags and buried them six metres underground at a location in Hefei, the provincial capital of Anhui. It took police 20 hours to dig them out with two excavators,” it reported.
Best forgotten, perhaps, that Ezubao was a title sponsor for one of Xinhua’s own online subsidiaries during the sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference in March last year.
The company logo was placed in the Great Hall of the People in Beijing and seen by millions of people across the country.
Ezubao also got an award as one of the most responsible internet finance companies from China Newsweek, another state media outlet.
Thousands of Ezubao’s investors have formed social media groups and some plan to protest publicly in cities including Beijing and Shanghai.
And the fact that CCTV was a key carrier of Ezubao’s marketing campaign means the official mouthpiece is under attack too.
“My training in the army means that it is a must for me to watch CCTV’s evening simulcast everyday. That was where I saw Ezubao’s TV ad. It gave me a feeling that it is reliable,” a retired PLA soldier complained. “CCTV is being irresponsible. I tell you I will never trust my Party [the Communist Party of China]. They ought to give us a proper explanation on how this could happen. I will defend my principal investment in the manner that a soldier defends his motherland.”
At least CCTV hasn’t tried to dodge the criticism, broadcasting the soldier’s diatribe against it. Meanwhile, there is no indication that the government will be helping any of the investors said to be out of pocket. Police told Xinhua that they are still tracking the money flow and will do their best to minimise investor losses.
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