Scores of Private-Equity Funds Collapse, Triggering More Financial Victims in China
Amid a wave of protests by Chinese citizens who recently have lost their investments in peer-to-peer (P2P) lending platforms, thousands more people say their money has disappeared in another area of China’s volatile finance sector: private-equity funds.
On Aug. 8, the Asset Management Association of China, an industry organization under the state’s supervision, released a new list of institutions that it has “lost contact” with, bringing the total of “lost contact” private funds to 170 since the beginning of the year.
“Lost contact” means they have failed to renew their registration status with the association in the past three months as required, in addition to not being reachable by the entity’s registered phone number or email. About 70 percent of these institutions are private-equity or venture-capital funds, according to an analysis by the Chinese newspaper, National Business Daily. The rest are mostly hedge funds.
While the Chinese regime has initiated a crackdown on debt and risky investments this year, its attempts to tighten regulation of the nation’s financial industry may be falling short. Many private-equity funds have collapsed, while some have recently been revealed to be allegedly fraudulent schemes.
For example, Beijing-based Yazhou Juejin is suspected of operating a Ponzi scheme, according to reports by the state-run newspaper China Fund and financial news site First Financial. The firm has since received over tens of billions of yuan in funding, since it was established in March 2016, and in 2017, its investors were receiving returns of well over 60 percent.
But, in June, investors found that they could not withdraw funds, the firm’s website went down, and the firm’s “legal representative”—usually the head of a company—Liu Zhiyuan, became unreachable.
According to the financial news app FToutiao, more than 5,000 people may have been defrauded of funds that total 15 billion yuan. Many of Liu’s staff also had also invested in the company.
Another private-equity fund on the “lost contact” list, Zhong Jing Guo Tou—based in the southern Chinese city of Shenzhen—offered contracts promising 8.3 percent interest rates for six-month investments and 9.3 percent for 12 months, with interest payments each month. Last month, news broke that the firm was behind in issuing interest payments to investors.
National Business Daily has reported that the firm’s controlling shareholder is the Shanghai-based Bund Holding, which also is under financial duress.
According to financial news site Quanshang Zhongguo, the total value of investments at the firm is about 1.8 billion yuan, with one investor in particular at 780 million yuan. Other investors also may have losses in the millions of yuan.
According to a Aug. 5 report by the Financial Times, some of these “lost contact” funds are actually part of broader groups that also operated problematic P2P platforms that recently collapsed and are now under police investigation.
Many platforms recently closed without explanation, prompting investors who lost their money to seek redress with China’s Banking Regulatory Commission. Their efforts were to no avail, however, after Beijing authorities sent police to shut down the protests.
In late July, investors who lost their money in private funds owned by Fuxing Group gathered at a branch of the Bank of Shanghai to seek repayment, according to the Financial Times. The conglomerate’s controlling shareholder had fled, putting 25 billion yuan ($3.7 billion) of investments in limbo.