Beijing asks local authorities to crack down on illegal fundraising platforms

Beijing has asked local authorities to crack down on illegal fundraising platforms after China's largest online peer-to-peer (P2P) lender was found to have collected over 50 billion yuan ($7.6 billion) for fake investment projects.

According to the State Council's website, strict precautions need to be taken to prevent future illegal fundraising cases, and that the government would work to educate the public better about such financial risks.

According to detained executives from the parent company of Ezubao, the biggest P2P lending platform in China at one time, the firm was a Ponzi scheme that advertised products that promised annual returns of up to 14 per cent and had attracted 50 billion yuan from over 900,000 investors.

The case had pointed to risks that had become part of China's rapidly-expanding $2.6 trillion wealth management product industry. Many products were being sold through loosely regulated channels, including online financial investment platforms and privately run exchanges.

The China Banking Regulatory Commission said over 400 billion yuan had been raised by more than 3,600 P2P platforms by the end of November. It added over 1,000 of those firms were problematic, it said.

Meanwhile, the state-run Xinhua news agency announced on Monday that Chinese police had arrested 34-year-old Ezubao founder Ding Ning and 20 others associated with the company, which shut down in December. The company paid out 800 million yuan ($121 million) to staff in November to ensure they wore designer clothes and expensive jewellery and advertised on high-speed trains and prime time on the state-owned CCTV channel, which misled viewers into believing that it was government-backed.

In reality, Ezubao, according to former company executive Zhang Min was, ''a complete Ponzi scheme,'' which relied on the constant flow of incoming funds to pay off those, seeking to withdraw their money. Xinhua had quoted Yong Lei, former director of the company's risk management department, as saying that ''95 percent of Ezubao's investment projects were fake.''