China Banking Scandal May Involve US$6 Billion

(MENAFN- Asia Times)

More than 400,000 depositors of six rural banks in central China's Henan province are being urged to file their cases to banking regulators if they cannot withdraw their money, which reportedly totals 40 billion yuan (US$6 billion).

Since April, the depositors, who are located in different places across the country, have been unable to withdraw their money over the Internet from the rural banks where they expected to enjoy an annual yield as high as 9%, Chinese media reported.

The Public Security Bureau in Xuchang, Henan, said on Saturday that it had completed a preliminary investigation of Henan Xincaifu Group Investment Holding Co, which controls 13 rural banks and has illegally transacted deposits, and arrested a group of people and froze their assets. Xincaifu literally means“new fortune” in Chinese. 

The bureau did not say whether Lyu Yi, the ultimate owner of Xincaifu Group, was among those arrested but it stressed that the case involved serious crimes. State-owned media said Lyu might have fled to the United States.

In late April, depositors complained that they could not withdraw their money from several rural banks, including the Yuzhou Xinminsheng Rural Bank, the Zhecheng Huanghuai Rural Bank and the Shangcai Huimin Rural Bank, in Zhengzhou.

The China Banking and Insurance Regulatory Commission (CBIRC) said on April 30 it was highly concerned by the illegal online banking services operated by some rural banks in Henan. It said it would work closely with local regulators and government departments to investigate them.

The CBIRC said on May 18 that it and the People's Bank of China (PBoC) had ordered their units in Zhengzhou to monitor the local banking activities closely and push forward the investigations.

This past Saturday, the Xuchang Public Security Bureau said in a statement that it had started an investigation on Xincaifu Group on April 19 and had preliminary evidence that Lyu Yi had been involved in serious crimes since 2011.

“The alleged illegal activities in this case were complicated and had lasted for a long time, involving a large number of people,” the bureau said.“Public security authorities will not allow criminals to be at large or evade punishment but will increase their efforts in investigation and the recovery of the lost money.”

Lyu might have fled to the US after he was ordered to provide information for the investigation of Cai Esheng, former vice-chairman of the China Banking Regulatory Commission, who was arrested on suspicion of crimes including taking bribes and abusing his power earlier this year, the Chongqing Morning Post reported on Monday.

The report said Lyu, born in 1974, made his first major success by winning a 30-year high-way project in Henan in 2003. It said he used the project's income to refinance and invest in some financial institutions that eventually became the shareholders of a couple of rural banks in China.

The report said Lyu's XinCaifu Group had so far registered more than 100 shadow companies and controlled at least 13 rural banks. It said Lyu's name had appeared in a bribery case in Zhengzhou in 2018.

Lyu holds Cypriot nationality and claims to have taken an Executive MBA course at the Chinese University of Hong Kong and an international-law class at Peking University.

In 2016, he set up an investment firm in Cyprus and several funds in Geneva, Luxembourg and Paris to invest in the food, hotel, property, medical, elderly-care, logistics and high-technology sectors in Europe and North America.

In 2018, he donated to a charity fund in Liberia and built schools in the West African country. Last year, he became the president of Peaceever TV International MediaGroup Inc a New York-based non-profit new-media institution.

He is also reportedly a member of the UNESCO Hong Kong Association, a unit of the Chinese National Federation of UNESCO Clubs, Centers and Associations, which belongs to the World Federation of UNESCO Clubs, Centers and Associations.

On Sunday, the banking regulators and several affected rural banks said depositors who have been unable to withdraw their money should submit their detailed information to them.

The Henan Xincaifu incident is reminiscent of a separate scandal, also involving a reported 40 billion yuan.

Last September, a wealth-management unit of Evergrande Group, a heavily indebted property developer, failed to pay money back to those who bought its high-yield investment products. The value of the products reportedly amounted to 40 billion yuan.

The incident coincided with the situation that many homebuyers could not take possession of apartments they had purchased from Evergrande.

Hui Ka-yan, the billionaire chairman of Evergrande, who is still in mainland China, was forced by the government to sell his personal assets and inject money to support his wealth-management and property businesses, according to media reports.

Meanwhile in yet another case, discipline inspection and supervision authorities in Zhengzhou said they had started an official investigation after many bank-run victims had their health codes turn red over the past one week. A red code means a person cannot go to public places or use public transport for anti-epidemic reasons. A person can move freely only with a green code. 

Major state media criticized some local governments for abusing the health-code system to stop people from exercising their legal rights. Some called on the central government to launch a standardized health code for all cities and provinces.

Read: Evergrande's crisis hits wealth product investors

Follow Jeff Pao on Twitter at @jeffpao3


Asia Times

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