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People's Daily Online>>China Society

Borrowers face costly payback

By Li Jing and He Na, and Xu Junqian (China Daily)

13:38, February 14, 2012

Chinese businesswoman Wu Ying was convicted of illegal fundraising and defrauding investors on April 16, 2009, after a trial at Jinhua Intermediate People's Court in Zhejiang province. She was later sentenced to death, a punishment that has raised questions among many experts. (China Daily Photo)

Death sentence for ex-tycoon fuels debate over private lending, report Li Jing and He Na in Beijing, and Xu Junqian in Zhejiang.

Wu Ying used to be one of the richest women in China. Today the former billionaire is on death row.

In the eyes of many people, particularly the judge who threw out her appeal last month, Wu is a fraudster who swindled her friends and business partners out of 770 million yuan ($122 million).

Yet, others oppose the sentence and say her case highlights a major issue in China: the reliance among small- and medium-sized enterprises on high-interest loans from private lenders.

From loan sharks and underground banks to pawnshops and auction houses, the private lending chain is huge and diverse, according to economists, who blame the situation largely on the struggles experienced by entrepreneurs in getting startup funds through authorized channels.

After 30 years of ongoing reforms, experts are now adding their voices to calls for China's financial sector to be opened up even further.

On Jan 18, Zhejiang province's high court upheld the death penalty handed down to Wu, insisting that the 31-year-old had purposefully cheated lenders between 2005 and 2007, using false financial statements and promises of large returns.

"Her intention was to defraud, this was more than just illegal fundraising," said presiding judge Shen Xiaoming on Feb 7, in a statement issued in response to public opposition to the sentence.

Yet, Hu Xingdou argues differently. The professor of economics at the Beijing Institute of Technology said that as tightened monetary policies have made it tough to get bank loans, borrowing money from relatives, friends and acquaintances on the promise of high returns has become the only option for many Chinese entrepreneurs.

Most long-term lending by commercial banks only goes to government-backed projects, which carry less risk, he said. All that is available to small and medium-sized enterprises, such as those run by convicted tycoon Wu Ying, is short-term capital that cannot be invested in fixed assets.

Although it is illegal and unregulated, he said private financing might actually be complimenting the official system.

"Interest rates are sometimes much higher than those set by State-owned banks, but the 'application' process is flexible and straightforward," Hu added.

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Jack Smith, USA at 2012-02-1424.26.135.*
Wow! This kind of thing happens every day in the U.S., the guilty are never punished and they are the elite who control not only the economy but the government as well. The U.S. is a country of, by and for the crooks. It"s pathetic. Looks like China is way ahead of America here. Jack Smith, USA
Cai at 2012-02-14112.210.175.*
To me, an outsider, the case is not just about fraud; it is more than that--it is China"s over reliance on the death penalty. A crime like fraud to be meted the death penalty is an overkill because the convict could always repay the money she defraud other people with prison labor.It is not like she killed someone where no amount of prison labor could repay that.
  

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