Damned lies and statistics: Fraud generates RMB300bn (US$48.9 billion) a year in China

Damned lies and statistics: Fraud generates RMB300bn a year in China

Weng Lu-yi and Staff Reporter


Which industry is the most profitable in China? The answer is neither the financial sector nor real estate, but the cheating industry. The money earned through fraudulent means exceeds 300 billion yuan (US$48.9 billion) a year. In 2008, police cracked down on two illegal pyramid schemes in Hebei who swindled funds in excess of 100 million yuan (US$16.3m). In the same year, authorities in Shandong province also busted an illegal pyramid scheme involving tens of thousands of people across 20 provinces. The company had ended up defrauding victims out of 890 million yuan (US$145m) in total.According to government data, the number of individuals involved in these types of schemes reached 2 million in Guangxi — which has a population of 46 million — who had reportedly earning 20 billion yuan (US$3.26bn) by dishonest means.

The phenomenon has made pyramid schemes the largest fraudulent industry in China, with its value pegged at least 50 billion yuan (US$8.16bn) a year.

As imported goods are expensive, counterfeit versions of items such as alcohol, cigarettes and food as well as even more expensive goods such as steel and cement has become rampant.

Government statistics showed that the sale of these fake products has resulted in an annual economic loss of 40 billion yuan (US$6.53bn).

Furthermore, it was found that at least 100,000 men and women have pretended to be wealthy to lure others into romantic relationships before borrowing money from their victims and disappearing. Some 1,000 such cases are reported every year, with some 25 billion yuan (US$4bn) having been swindled by such individuals in 2012.

Other cases of fraud include text message scams. Figures indicate that victims were swindled out of more than 20 billion yuan (US$3.26bn) from such scams in 2012.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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