A businesswoman in southern China has been sentenced to death on charges of defrauding investors as the government tightens controls on informal financing that is widely used by entrepreneurs.
Lin Haiyan (林海燕) was convicted of “illegal fundraising” for collecting 640 million yuan (US$100 million) from investors by promising high returns and low risk, according to a statement by the Intermediate People’s Court of Wenzhou, a center for private sector business.
It said the scheme collapsed in October 2011 and 428 million yuan could not be recovered.
The case highlighted potential abuses in largely unregulated informal lending that supports entrepreneurs who generate China’s new jobs and wealth, but often cannot get loans from the state-owned banking industry. The government is tightening controls after a surge of defaults following the global financial crisis sparked protests by lenders.
Another businesswoman from Wenzhou also was sentenced to death last year on illegal fundraising charges. That penalty was overturned following an outcry on the Internet and she was sentenced to prison.
The underground credit market is estimated by China’s central bank and private sector analysts at 2 trillion yuan to 4 trillion yuan, or as much as 7 percent of total lending. In some areas, informal lending exceeds that of official banks.
Many households provide money for private lending in an effort to get a better return than the low deposit rates paid by Chinese banks, which effectively force depositors to subsidize low-interest loans to state industry.
Authorities have sentenced 1,449 people to prison terms of at least five years for involvement in underground lending since 2011, a Ministry of Public Security official, Du Jinfu (杜金富), said last month.
Lin started raising money from friends, relatives and coworkers in 2007, according to a statement on the court’s Web site. It said Lin told investors the money was going into stock offerings and bank deposits but used it to speculate in stocks.
Even as losses mounted, Lin continued to raise money until the scheme collapsed, the court said.
The statement said the penalty still must be confirmed. All death sentences in China are automatically appealed to the country’s highest court for review.
The court took the unusual step of issuing a second statement to support sentencing Lin to death after a Chinese blogger questioned the penalty in a comment that included the phrase “killing the witness.”
“Lin Haiyan’s actions constituted financial fraud that caused huge losses and seriously damaged the people and the state,” said the statement, which was several times the length of the original announcement.
It criticized the blogger for challenging the court’s decision.
A statement on the Web site of China’s highest court, dated in 2011, says charges of “illegal fundraising” can be applied to an individual who receives more than 200,000 yuan of informal loans or causes losses to lenders of 100,000 yuan. Enterprises can face charges if they receive 1 million yuan or causes losses of 2.5 million yuan.