The man ostensibly at the head of this scandal was Zeng Chengjie, a local real estate developer. I say was, because Zeng was executed last July. As a former reporter, I am ashamed to say I didn’t learn about it until just last week, from a French traveler of all people. But, as they say, better late than never.
Jishou is normally a very calm and peaceful place. (Another way to put it is, “boring.”) The only times it gets loud and crazy here are when it’s a big holiday, like Spring Festival, or when an NBA exhibition game is at the city sports arena.
But, in September 2008, there were mobs of angry people downtown, many outside the gates of the city government complex, demanding compensation for losing money in an investment scheme. For a time, there were police in riot gear and soldiers patrolling the streets. My foreign affairs officer called me on at least two different occasions to advise me to stay on campus and especially not visit the downtown shopping district.
At the time, being new to town, I was a bit unclear on what all the fuss was about. My students helped me understand it. It was a “get rich quick” scheme by a local financier who had the backing of local government officials. People were promised high rates of return on their investments into a real estate enterprise. Lured by these fantastic promises and the participation of government officials, local citizens invested their savings or mortgaged their homes to get in quick.
Well, like the infamous hedge fund managed by Bernie Madoff, this local version of a Ponzi scheme rapidly collapsed, leaving thousands of people almost penniless. And very angry, because they blamed the local government for encouraging the whole scheme.
Eventually, officials promised up to 50% of the losses would be paid back, and the protests subsided. The police ditched their riot gear, and the army went back to wherever they’re based.
Time passed, and forgot all about the scandal. Then, last week, I met a couple from France who are traveling for two months through Russia and China. They mentioned their friends had told them about Jishou’s big financial scandal, and the main instigator had been executed last summer.
News to me! Here I am, a longtime resident, and I never heard about it, though I am sure my Chinese friends did. It didn’t take me long to find articles about it, two of which I am linking here.
Zeng Chengjie was a Hunan native and had become quite successful as a real estate developer during the go-go years of the world economy before the 2008 “correction,” as the market analysts like to call it.
He had convinced most of Jishou’s residents and many government officials to invest in his real estate projects, promising high rates of return. Some media say he raised 16.8 billion yuan (about $2.8 billion at today’s exchange rates), about three-quarters of the local GDP.
Then the national government tightened regulations on investments, perhaps because of the world financial crisis, and local government officials pulled out their money. Zeng’s house of cards fell apart as more investors bailed on him.
He was arrested in December 2008 and charged with illegal fundraising. That’s basically anything not going through the normal banking channels, or (practically speaking) anything the government doesn’t like.
[There’s been a lot of coverage lately in the Western press about China’s “shadow banking system,” and how it threatens to destabilize the national economy. Zeng’s scheme was just one example of how these informal arrangements can go sour in a hurry.]
A provincial court sentenced him to death in May 2011. He appealed up to the supreme court, but his appeal was denied. Zeng was executed by lethal injection on July 12, 2013. His family was not notified beforehand.
His elder daughter and wife, who were allegedly involved in the scheme, are serving prison sentences.Of course, the story doesn’t end there. His youngest daughter (at right) insists Zeng took the fall for the officials who were complicit in the affair, some of whom benefited financially from his fall from grace. According to her and others, Zeng had refunded $1.7 billion to investors before his arrest, demonstrating he was trying to recompense investors who had entrusted their savings with his firm.
Nothing surprises me anymore about life in China, so her side of the story is as plausible as the official version. The idea that local officials were getting rich off the gullibility of the citizenry is certainly believable. Whether Zeng was really crooked, or just overzealous, is something I can’t even wager a guess on. Bernie Madoff sure had a lot of very savvy investors fooled before his Ponzi scheme fell apart.
Coincidentally, the two men were arrested the same month. Madoff was convicted and sentenced to 150 years in the penitentiary. He might consider himself lucky he wasn’t operating in China.