Wu Ying rose from being a poor peasant to one of the richest women in China. But at 30 years old, she sits in jail awaiting the death penalty for borrowing money from private lenders – a common but technically illegal practice. Many people wonder, who did Wu Ying anger to get this fate? And will society benefit from her execution, or from reforming and regulating its private lending laws? China Entrepreneur traces the shady twists and turns of her arrest, trial, and the divvying up of her wealth by local officials.

By Cai Yu, China Entrepreneur magazine

This article is reprinted from the November 2011 English iPad edition of China Entrepreneur. In January 2012, the High People’s Court of Zhejiang province upheld Wu Ying’s death sentence, prompting a surge of comments on China’s microblogs. The sentence is still subject to review by the Supreme People’s Court.

Wu Ying, once one of the most successful business women in China, has spent five birthdays behind bars. Local officials are selling off her business holdings. She is only 30 years old, but has been sentenced to death penalty for borrowing money outside official channels to fund her business, a common but illegal practice that even government officials take part in.

Her fall came as fast as her rise. In 2006, this young woman from Dongyang, Zhejiang province, became a star in the business world overnight. She started eight industrial corporations almost at once, investing hundreds of millions in the hotel, wedding planning, real estate and logistics industries under the banner BenSe Group. (BenSe means “original color” in Chinese.) Wu Ying was estimated to have 3.8 billion RMB of capital, according to the Hurun Report that year. The source of her wealth became one of the biggest mysteries in the business world of China.

Ten months later, in February 2007, Wu Ying was arrested for “illegally absorbing the savings of the public.” She was sentenced to death in 2009, and appealed to a higher court in 2010.

In 2008, she faced new charges, “fraud through illegal funding.” During her trial for these charges in 2011, she said she was innocent, but admitted guilt to the earlier charge of “illegally absorbing the savings of the public.”

The verdict is still up in the air. Will her death sentence be changed or not? Wu Ying is waiting, so is her family, and her creditors, as well as unknown powers hidden in the shadow like ghosts.

“More people believe Wu Ying will be exempted from death penalty at the trials of the second instance. As her counsel for defense, I share this estimation: The second instance, no problem. It’s been three months since the court debate and there is still no result. This means that the court can’t reach a verdict internally. I’m afraid there are significant differences of opinion on this case,” says Yang Zhaodong, Wu Ying’s attorney, one of the partners of King & Capital Law Firm. Yang has chosen to defend Wu Ying in both instances.

The Research Bureau of the Central Bank conducted two reports on private lending, in 2008 and 2010, and found that the value of private lending in China perhaps exceeded 240 million RMB, 5.6% of the lending market. In Zhejiang, Shanxi, Inner Mongolia and other provinces with active private lending, supervision of the authorities can’t keep up with the speed of capital flow and innovative ways to pursue profit. The reports found a growth of 28% of private lending in China between 2008 and 2010. Clearly, inflation rates that outpace the interest rates offered by official banks and the liquidity of the past two years have made the demand for private lending even larger.

Wu Ying’s case has reflected the dilemma that small and medium enterprises in China are currently in, with the narrowing of the funding channels and a system still under development. When Wu Ying found no support from official financial institutions, she turned to private lending, a gray area that falls outside the supervision of the authorities. The final verdict in her case will directly impact private enterprises and private lending, and become a key precedent.

The most important question for businessmen is not whether Wu Ying is given the death sentence, but rather whether the debtor and creditor in a private lending arrangement have committed any crime as they practice outside the financing and credit system of the authorities.

“In terms of law, this case is rather clear. In terms of social influence, why is it so important to kill her, a young girl who has encountered problems in her business? What social effect would it bring if she were sentenced to death or sentenced heavily?” asks Tian Wenchang, director of King & Capital Law Firm, a confidant of Wu Ying from the law firm that is defending her.

What is more important: to make Wu Ying a sacrifice on the altar of control over private lending, or to lift the ban on private lending which is already a common practice? The best result would be for Wu Ying’s case to draw the attention of decision makers, and make them more aware of the current underground financing conditions and regulate the market.

Who wants Wu Ying dead?

Dongyang falls under the jurisdiction of Jinhua city. Like other cities and counties in Zhejiang province, private lending is so active here that even government officials get involved.

The two biggest industries in Dongyang are wood carving, and the Hengdian Film & TV studio. Dongyang is a forty minute drive from the much more prosperous Yiwu city.

Wu Ying’s father Wu Yongzheng, her husband Zhou Hongbo and many creditors share one belief about this case: Wu Ying is in trouble because she has picked the wrong place at the wrong time. They say her fall is not caused by private lending, but by her shaky foundation of powerful connections in Dongyang.

“You have no idea how common it (private lending) is in Dongyang. There are so many investment companies in Dongyang, and if this is a crime, then half of the people in this field should be put to jail,” a female creditor said. She believed that Wu Ying did nothing wrong by borrowing money from people. “She is just too young. Those who have expertise in this are still safe no matter how much money they have borrowed.”

“Dongyang has made a lot of efforts to attract investors, but few chose to stay, because the business environment is no good here,” Wu Ying’s husband Zhou Hongbo said during a phone interview. He said that he was strongly against Wu Ying’s idea of trying to grow her businesses in Dongyang, because he believed that she was too weak to compete against the local powers.

Wu Yongzheng says that his daughter told him that she was threatened for refusing to pay bribes to the Lou family, which he calls the local power that has dominated Dongyang for years. He remembers the threat as if it were a line from a gangster film: Somebody said, “‘who cares Wu Ying is making so much noise now? Sooner or later I’d have her kneeling down before me.’ ”

Wu Ying’s father asserts that the Lou family played an important role in the kidnapping of Wu Ying by creditors in 2006, her arrest, and the low-price auction of her BenSe Hotel after her arrest.

On July 14, 2011, Guangxia Holding Venture Capital Co., Ltd claimed that the Lou Zhongfu family had nothing to do with Wu Ying’s case. It added that the family has not been involved with the division of Wu Ying’s assets after Wu Ying was arrested. It condemned Wu Ying’s father for concocting rumors. In response, Wu Yongzheng said, “They said they’d preserve the legal rights to sue me, and I’m looking forward to it.” (China Entrepreneur tried contacting the Guangxia group, but their response was always the same: the man in charge was
overseas.)

In 2010, Wu Ying accused ten local officials and bank managers of taking bribes from her. Based on her written materials, Li Tiangui, former director of the People’s Congress of Jingmen city, Hubei province, and Zhou Liang, former vice president of the Jingmen branch of Agricultural Bank of China, were arrested.

Someone told Wu Ying’s father that before Wu Ying’s first trial, over a dozen employees of the Gongyang municipal government wrote jointly to the judge, requesting Wu Ying to be sentenced to death. Wu’s father asked the judge whether this was true, but got neither confirmation nor denial. One of Wu Ying’s confidants, who asked to keep her identity secret, said, “I just hope they don’t kill Wu Ying. If she gets acquitted, many people will go down.”

Kidnapped

Wu Ying wrote in her appeal to the higher court that she was kidnapped by her creditors Yang Zhi’ang and Yang Weiling for 10 days at the end of 2006, and that Yang Weiling’s wife, a governmental official of Yiwu City, was also involved in the kidnapping. Wu Ying wrote that when she came to the Public Security Bureau to report the kidnapping after she was released, she was told there was no case. When she came back to the BenSe Hotel where she often stayed, a threatening letter with two bullets was at the front desk waiting for her.

On Feb. 4, 2007, Wu Ying was about to board the flight back to Hangzhou at Beijing Capital Airport when she was arrested by officials from the Dongyang Public Security Bureau, starting her four-year imprisonment. Recalling how she was arrested, she had many questions and doubts. At Beijing Capital Airport, the Dongyang Public Security Bureau showed no relevant legal documents. She was arrested and taken directly to the Jinhua Detention House, with the case registered using a false name and a false charge:”Zhu Suzhen, 50,000 RMB fraud.” Not until three days later did the Dongyang Public Security Bureau issued a warrant of arrest for absorbing savings of the public.

Someone who had access to Wu Ying said that at the detention house someone tried to send some negative signals to Wu Ying by telling her,” There is no hope to change the verdict on your death sentence. Don’t make efforts in vain.” This put Wu Ying in despair. On June 29, 2010, Wu Ying drank more than half a bottle of industrial glue after discovering prison officials read her written materials exposing her bribery of the governmental officials.

Wu’s father says that in September 2007 Wu Ying sent him a postcard from detention house, authorizing him to be her representative to handle all affairs of Bense Group and Wu Ying’s case. He turned down Dongyang Public Bureau’s request to auction off the assets of BenSe Group temporarily held by it. Wu Ying’s lawyer handed in letters repeatedly, requesting Dongyang Public Bureau to cancel the auction because it was illegal. However, these efforts didn’t stop the Dongyang Public Bureau from auctioning off cars, furniture and the BenSe Hotel at a low price.

In April 2009 the first court hearing of the first charges took place, but Jinhua Intermediate Court didn’t show Wu Ying the 50 pages of records of the court hearing until December. Wu Ying immediately found that the records did not match what was stated in the court hearing, so she refused to sign. After repeated efforts to persuade her, she finally signed: “I hereby certify that I’ve read the above written records, but as it’s been too long since the court hearing which involved in too many issues, I can not remember everything clearly. I would confirm nothing but the video and audio record of the court hearing.”

On Feb. 10, 2007, the local government of Dongyang city made an announcement through the local Dongyang TV station that the BenSe Group would be closed and its more than 1,000 employees dismissed. An asset audit team would be formed to take care of the assets of the Bense Group as well as its debts.

Back on the street where BenSe Group was located, Wu’s father showed China Entrepreneur that the BenSe internet bar and the BenSe Construction Materials City were both closed, the windows and doors were shut and the computers and construction materials were all gone – where to? That is a question with no answer. He questioned, “Why did the government make an announcement about a case still in court?”

On June 29, the Dongyang Public Security Bureau explained in an interview with the China News Agency that the reason to auction the automobiles of BenSe Group was that many creditors, mostly people from the wealthy nearby city of Yiwu, came to them repeatedly, urging the police and the government to auction them as soon as possible.

Lin Weiping, Wu Ying’s major creditor in Yiwu, denied this. He said, “First of all, the Dongyang government has set up an investigation team, and before they come to any conclusion, we won’t say anything. Second, our own assets were sealed up by the Public Security Bureau as well.”

He said the Dongyang Public Security Bureau told him to persuade the imprisoned woman’s other 70 creditors to come in and sign a document as a condition to lift the seal on his assets. Lin said no. “Obviously, it is impossible.” — Because no creditor wanted to disclose their true identity and risk being imprisoned.

Big Cousin

Wu Ying was born to a peasant family in Dongyang in 1981.She was the eldest of four girls. After she finished junior middle school, she went to a high school for professional training, but didn’t graduate. She worked as an apprentice at her aunt’s beauty salon. In 2002, she started her own. Her wonderful skills and her open and generous personality attracted many important clients, and her business became very successful.

In 2002, she was engaged with Zhou Hongbo, a local young man. By 2004 when they got married, she had already owned many businesses, including beauty salons, KTV night clubs, foot massage centers and clothing stores. After she was arrested, she told the police that her total assets in 2004 were as high as 25 million RMB. Had Wu Ying decided to stop then, she could have retired early and played mahjong every day while earning profits from her businesses. However, she was dreaming big.

At the end of 2005, a friend introduced Wu Ying to Luo Huamei from Yiwu, and then to Lin Weiping, who would become a major creditor. Lin Weiping had access to hundreds of millions of renminbi. Wu Ying called him “big cousin.”

Lin Weiping is an ordinary looking man in his 40s. He looks as if he’s been through a lot, but by no means cunning or aggressive. Before strangers, he seems rather shy. In short, he doesn’t have the air of a “banker”.

“We are engaged in financing.” Lin Weiping said. “This relies on credit. This is not a mafia business.” In 2010, there was more than 150 million RMB worth of private lending in Zhejiang province, and people like Lin Weiping control this huge pool of funds.

In 2003, Lin Weiping, then a public servant of the Yiwu Cultural Bureau, started a factory to make socks and stockings. In 2005, he resigned from his government position and began to focus on his business. In order to keep his business running, sometimes he had to borrow money from his friends and his friends would borrow from him too. In the beginning, they wouldn’t charge each other interest. Later on, they decided to pay interest to each other whenever a loan was given instead of paying with gifts and favors.

Lin Weiping learned in this process about the importance of funding. He closed down his factory and became a funding coordinator who knew how to pool money from his family, his friends, his former colleagues and business partners and give loans to those in need. He made money on the difference in interest rates between borrowing and lending.

Yiwu is a wealthy city where Lin Weiping did not have to worry about the source of funds. As he built his reputation in financing, some friends came to him, asking to be part of his profitable business. Some people trusted him so much that whenever they had some spare money, they’d immediately send it to Lin’s bank account without even talking about the interest rate. “Sometimes I
don’t even know when they put the money into my bank account,” Lin Weiping said. The transactions were all based on mutual trust and credibility.

Lin Weiping paid creditors a monthly interest rate varying between 2 to 5 percent. “When capital is tight, the creditor would ask for a higher interest rate. But sometimes when you only lend the money out for a few months, he’d be unhappy. Creditors preferred long-term clients with a lower interest rate.”

Lin has his own principles for lending money: no drugs, no gambling, no money laundering. He liked debtors engaging in industry, in other words, things that could be seen.

With governmental policies favoring loans to large state-owned enterprises, commercial banks were not flexible enough to meet the needs of medium and small enterprises and individuals. This left Lin Weiping and many other private lenders a huge market space. For local people who are in need of capital, bonding and consulting companies, pawn shops, enterprises and individuals are all potential sources of loans. In this way, the official financing institutions became secondary to private lending in the local market.

During the accounting period at the end of a month or a year, the local banks in Yiwu or even other cities would even turn to Lin Weiping, their competitor, for loans to keep their business running. Lin never dealt with such transactions directly. Usually, he’d ask one of his creditors to open up a private bank account in the bank, and deposit the money in it, but only for one day. When a bank was extremely tight for money, it would be willing to pay 10,000 RMB for every deposit of 1 million RMB.

Lin Weiping rarely allows money to flow out of Yiwu. However, at the beginning of 2006, he made an exception when his cousin Luo Huamei took Wu Ying, a 25-year-old girl, to visit him.

Wu Ying said she intended to borrow 10 million RMB to start a financing company in Zhuji, Zhejiang. She invited Lin Weiping to go and see this project. She said she also needed money to do futures speculation. Luo Huamei told Lin Weiping that this girl was doing very well in Dongyang and she had 20 to 30 million RMB under her name.

Lin Weiping did some careful thinking. “Those with more than 20 million RMB don’t have to take big risks. Since her company was doing so well already, she did not have to take on any projects unless she had total confidence.” Lin didn’t give her a loan to do futures, but he did go to Zhuji with her to see the
project. After verifying that this project did exist, he lent the money to her. Ten days later, Wu Ying paid it back to him as promised.

In April 2006, Wu Ying came to see Lin Weiping with the news that she had found a tourist development project in Jingmen, Hubei province, that would need an investment of 200 million RMB. She wanted to borrow 300 million from him. (In Wu Ying’s written appeal to a higher court, this number was raised to 400 million RMB.) Wu Ying said that Zhou Liang, vice president of the Jingmen Branch of the Agricultural Bank of China, introduced her to Li Tiangui, secretary general of the municipal government of Jingmen, who promised to support her purchase of the Jingmen Hotel and help her develop real estate in Jingmen.

Wu Ying seemed to have a golden future ahead of her. At the time, she had borrowed nearly 130 million RMB from Lin Weiping and other creditors, and paid it off.. She had more than 25 million RMB under her name. Now she began to dream of starting her own group.

Lin Weiping checked his account bank. He had capital returning to his account, and his creditors were not intending to withdraw the money. He thought it would make sense to lend it to Wu Ying.

Between June and September 2006, Lin Weiping gave Wu Ying several loans worth a total of nearly 43 million RMB. Behind these loans were six creditors, both individuals and business entities. Lin warned Wu Ying repeatedly, “No matter how many projects you are investing in, you must tell me honestly. If you are short of money, I will try to solve it for you. Just don’t try to borrow money from others blindly.” According the rules of the private lending industry, creditors keep their clients and their businesses confidential, and forbid the debtors from mortgaging one asset to get several loans from several creditors.

The interest rate on the loans remains a mystery. According to the verdict of Wu Ying’s first trial, Lin Weiping gave the monthly interest rate as 12 % on a loan of more than 400 million RMB.

Wu Ying denied this statistics. She wrote in her appeal to a higher court, “My investments and businesses came from the loans Lin Weiping gave me. A yearly interest rate of 3%, which is a rather low cost for me. I think it is normal to borrow money from friends to do business.” Lin Weiping confirmed to the reporter that he gave Wu Ying a very low interest rate. “I told her, ‘As long as you do it well, I don’t mind making less profit in interest, ’” he said. “Just focus on your industrial businesses. Even if you end up losing money in your enterprises, I will still support you.”

Even after Wu Ying was arrested, Lin Weiping refused to accuse Wu Ying of “fraud.” He believes that the money he lost lending to Wu Ying was a strategic mistake, and a risk he had to face in his business of “financing.”

Asset bubble

After some time had passed, Lin Weiping suddenly learned from the local newspaper that a billionaire in Dongyang had purchased more than 700 shops in Dongyang Century Commerce City with 200 million in cash, purchased more than 20 high-end cars at once, paid 500,000 to 1 million annual salary to the managers of various departments and even paid the exceptionally high monthly salary of 2,100 RMB to her security guards. She offered free service in her car wash and dry-cleaning businesses.

Lin Weiping couldn’t believe what he read. He immediately called Wu Ying. “What on earth are you doing? Didn’t you say that you’d invest the money in Hubei?” Wu Ying said that the decision makers of the government of Jingmen, Hubei Province, were to send a team to Dongyang to investigate the power of BenSe Group, and she was merely demonstrating her power here. At the end of October, , Wu Ying invited her contacts at the Jingmen Agricultural Bank of China and the Jingmen municiple government to Dongyang in order to move forward with the Jingmen project.

But Wu Ying had bitten off more than she could chew. Between July and September 2006, she purchased and rented many properties surrounding BenSe Commerce and Trade Corporation, registering a lot of companies under the name of BenSe. Her businesses included automobile repair and maintenance, laundry cleaning, advertisement, hotel management, Internet bars, construction materials, wedding planning and logistics. Very quickly, she has created from nothing a “BenSe Street.”In July, she spent 21 million RMB to purchase 55% of the shares of Boda Garden, a real estate project in Dongyang, and paid a 5 million down payment to purchase the sales rights of the commercial buildings of Boda Xintiandi. Her main creditor Lin Weiping said later that “she perhaps has lost control.”

“She is in denial, which makes me very unhappy,” Lin Weiping said.

Lin Weiping’s doubts didn’t escape Wu Ying’s notice. So she made a choice her creditors in private lending detested: Starting from August, she began to secretly borrow money from Yang Zhi’ang, Gong Yifeng, Yang Weiling, Yang Weijiang and other private creditors as well as her sworn-sister Xu Yulan. The loans were worth tens of millions each, and the daily interest rate was 4‰ to 5‰. She did all this without telling Lin Weiping. Starting from April 2006, Wu Ying borrowed a total of 720 million RMB from 14 creditors in Dongyang and Yiwu, including Lin Weiping.

Wu Ying’s name became famous overnight in China. People were surprised as well as confused. They began to ask questions. In November, Wu Ying, while deeply indebted, explained to the media that she became rich because of three things: beauty salons, buying and selling properties, and futures speculation. She claimed that most of her funding came from the futures speculation.

The creditors realized at this point that this young and wealthy woman was tight for cash. They began to urge her to pay back her loans, which soon dried up her pool of funding. Then came her kidnapping.

Wu Ying said in court that she was kidnapped by her creditors Yang Zhi’ang and Yang Weiling, who forced her to travel with them to Ma’anshan in Anhui province, Zhenjiang in Jiangsu province, and Wenzhou and Hangzhou in Zhejiang province. She says they forced her to sign more than 30 blank documents and a check for 3.3 million RMB. She also says they stole from her several bank cards and about half a million RMB worth of jewelry and cash. She says they took the stamps and license of her company, and finally forced her to write receipts and authorization documents for the things they had taken.

On December 28, Wu Ying’s cousin Luo Huamei tracked her down. She travelled to Zhenjiang to pick her up, and accompanied her back to Dongyang. Lin Weiping had a different interpretation of this incident. “I told Wu Ying at the time, ‘You’re partly responsible (for the kidnapping) too. Whether you have money or not, you need to be honest with your creditors. When they come to collect their money, you can’t keep telling them lies and keep them waiting without knowing when they can get their money back. It was you who turned them to cornered beasts.’ “

Wu Ying came home safely, but the news had already spread around Dongyang. The day she returned home, someone leaked to the financial media that BenSe Group was suffering from tight cash flow. The Dongyang Branch of Industrial and Commercial Bank of China urged her to pay back a loan of about 10 million RMB. Even the more than 1,000 employees of BenSe Group became anxious – they didn’t get their salary on their pay day, January 10.

Wu Ying once again turned to Lin Weiping. She said she had no money to pay her employees, and asked for a loan of a few million in cash. Knowing that it would cause the BenSe Group to collapse if she had no money to pay her employees, Lin Weiping gave her a loan for the final time.

At this point Lin Weiping realized that Wu Ying was too young to make this game work. In order to minimize the loss, Lin Weiping convinced each and every creditor in Yiwu to support him to buy Wu Ying’s debt package at 70% of its value. Wu Ying didn’t take the offer. She was busy try to bribe and persuade Liang Hua, president of Lishuidengta Branch of the Agricultural Bank of China, to give her a loan.

On Feb. 4, Wu Ying was arrested. However, because the Dongyang Public Security Bureau didn’t show any judiciary documents at her arrest and registered with a fake name when throwing Wu Ying into the detention house, nobody, including her father Wu Yongzheng and her major creditor Lin Weiping, knew where she was.

Five days later, Lin Weiping and Wu Ying’s cousin Luo Huamei were arrested on criminal charges by the Dongyang Public Security Bureau. The next day the Dongyang government announced on Dongyang TV that an asset audit team would be formed to clear the assets and debts of the BenSe Group. This was followed by the arrest of other creditors.

Lin Weiping was sentenced to six years in prison, and was released on parole last August. His assets – four cars, three villas and cash – were still frozen. He talked with his creditor friends and promised them that whatever he got back from the debtor, he’d split with everybody fairly.

Lin Weiping said that he would never touch “financing” again. “Financing is different from any other profession. This case made me lose face.” Currently he is living in an unfurnished apartment a former creditor lent him, and in his spare time he studies traditional Chinese medicine and culture. He said he “neither loves nor hates Wu Ying” and he wishes her good luck.

The verdict

In January 2009, the Public Prosecutor’s Office of Jinhua city brought Wu Ying’s case to the Intermediate Court of Jinhua city, with the accusations changed from “illegally absorbing public savings” to “fraud in funding.” During the court hearing on April 16, 2009, Wu Ying, after two years in detention, seemed as unbending as before. She defended herself by saying, “It is true I’ve been doing business with borrowed money, and it is also true that I paid high interest rates. But I never meant to cheat them over money. I used the money on the business of my company. Had I not been arrested, I believe I could pay it all back.” When the prosecutor questioned her abilities to manage so many companies under her name, anger was apparent on her face. She rebuked, “On what grounds do you say that I have no such abilities?”

In December 2009, the Intermediate Court of Jinhua City came to a verdict that Wu Ying was guilty and she was sentenced to death with all of her political rights being deprived and all of her personal assets seized. In January 2010, Wu Ying appealed to a higher court.

The trial for the second charges didn’t take place until April 7, 2011. “I believe I am not guilty of fraud through funding. But I admit that I am guilty of illegally absorbing public savings,” she said with a low voice after the judge allowed her to defend herself.

This trial was the first time Wu Yongzheng saw his daughter in two years. He was very emotional when he heard her say these words. He told the reporter in the interview after the court hearing, “When I heard such words from her, I wish I could slap her in the face if I was allowed to do so. As a human being, you can’t admit to what you’re not guilty of. If she pleads guilty of this crime, I’d rather her dead. A girl without pride does not deserve to be my daughter!”

Throughout his whole life, Wu Yongzheng had to deal with all sorts of lawsuits. He never yielded to any power, nor would he show his weakness to anyone. Inside the closet next to his bed, he has kept documents concerning Wu Ying’s case. He regularly took the original documents out for photocopying, but he almost never went to the government and the Public Security Bureau of Dongyang City. In his mind, he would not beg for mercy.

Wu Ying has her father’s personality, only with more generosity and ambition. When she was busy with her beauty salon and traveling between Guangzhou and Dongyang, she swore that she’d bring the verve and modernity of Guangzhou to Dongyang. This July, when Wu Yongzheng walked along the former BenSe Street in Dongyang with a China Entrepreneur reporter, he said proudly, “Wu Ying has a much smarter business brain!”

“See, some people in Dongyang are creating large, multi-functional entertainment cities. In many places in China, people are experimenting with conceptual hotels. All these were Wu Ying’s ideas a few years back!” The young man who worked as driver and guide that day used to be a general manager of the entertainment department of a five-star hotel in Yiwu. Attracted by Wu Ying’s ideas, he joined in a large, multi-functional entertainment city project of

BenSe Group. He said with a longing look on his face that if Wu Ying was released, he’d still follow her. “She has ideas!” he said.

Wu Ying’s lawyer, Yang Zhaodong, summarizes Wu Ying’s character this way:ambitious, bold, unaware of risks, typical young person born in the 1980s. He sees Wu Ying as a girl who wanted to achieve big things. “But whatever she does, she is only thinking of the factors that would lead to success, not the factors that would bring her down.”

During her four years in prison, Wu Ying has sent out all sorts of written materials – appeals, accusations and stories about how her cell mates were neglected when physically weak and vulnerable. She wrote how a kind-hearted cellmate was locked up in solo cell because she delivered a bag of candy to a criminal facing the death sentence. She wrote about how her cell mates suffered under the unbearable heat.

Her lawyer Yang Zhaodong also believes that another factor causing Wu Ying’s failure was her choices of employees. “She has such a huge enterprise, but all the management were about her age. She didn’t have more stable and more mature people to be her advisers. She made bad judgments of people sometimes.”

When she was first confined, Wu Ying was rather optimistic about her future. She wrote to her family in October 2007, “I will reform myself peacefully and try to get out of here as soon as possible. You must have faith in me that I have a more wonderful road ahead of me.”

Isolated from the huge pressures from her businesses and her debts, she soon
became an ordinary girl who had a strong desire to remain beautiful. She often asked her family to bring her skin care products, cuticle remover gel and bitter melon capsules.

However, after four years of waiting and detention, Wu Ying’s optimism and ambition wore away.

In detention, Wu Ying asked her sister in a letter to express her gratitude toward Wu Ying’s husband. She wrote, “I know my relationship with him is over. Just like a kite with a cut string, our attachment is no longer there. I am very grateful for what he did for my case. He has endured so much more than I did.” Today, Wu Ying’s husband Zhou Hongbo keeps busy with his own business, trying to keep a distance from anything related to BenSe Group and Wu Ying.

In 2010, after submitting her written appeals to a higher court, Wu Ying fell into long and hopeless waiting. Despair struck her and she almost reached the point of mental breakdown. She withdrew her appeals and refused to believe anyone, not even her father. The only person she wanted to see was lawyer Tian Wenchang. Wu Yongzheng begged Tian Wenchang to go and see her at Jinhua Detention House. Tian did, and he spent hours trying to console her.

“She is a girl in her twenties. After she was sentenced to death and locked up in cuffs, she felt so ashamed of herself that she didn’t want to see anyone,” Tian Wenchang said. He remembers that he had tried to console her in this way: “Your parents, your sisters and many others are still counting on you, so am I. Some day when I can’t work any more, can you support this old man?”

“No,” she said abruptly. “They already called me a liar. Now I am stuck here and can’t go anywhere. If I promised you to support you when you’re old, knowing I can’t deliver the promise, that would only prove I am a liar.” Tian Wenchang was heart-broken at these words.

Wu Ying finally took her lawyer’s advice and began to study law in the detention house. At the same time, she wrote tens of thousands of words about her violations in hoping that her confessions would be considered a cooperative attitude to save her from the death sentence. In July 2010, these written materials were handed in the people’s supreme court of Zhejiang province. This was the third time Wu Ying handed in materials to this court since she was sentenced to death.

Wu Ying’s confession at the trial of the second charge came as a shock to her lawyer Yang Zhaodong, although he had foreseen that coming. In their previous meetings, Wu Ying once said, “I’ve been confined for so many years, and it is impossible for them to release me as not guilty. In order to show I have a cooperative attitude, I think I’d better admit that I am guilty of illegally absorbing the public savings.”

At the detention house, Wu Ying began to write an autobiography about her career as a businesswoman. She is planning to publish it with the title Black Swan as soon as the opportunity comes. She told Yang Zhaodong that when she is freed, this book might help her make some money to pay back her loans.

In Yang Zhaodong’s opinion, the charges against Wu Ying will not stand. “To Wu Ying, these people (11 creditors specifically involved in this case) were a particular circle of friends instead of the “unspecified” public. Wu Ying did borrow money from these friends, but she didn’t commit fraud via gathering funding from the public,” Yang told the court. Wu Ying is waiting for the verdict.

Private Lending Thirsts for Salvation

By Wang Zi

Four years after Wu Ying was imprisoned, underground financing continues to grow. Wu Ying’s case, in terms of the amount of cash involved, is already off
the top-ten list.

In Wenzhou, the birth and death of medium and small businesses is as common as the change of seasons. However, in recent years, the bankruptcy of more and more enterprises is shadowed by the private lending.

According to the statistics of the intermediate court of Wenzhou City, from March to May 2011, the court has taken 2,628 cases of conflicts involved in private lending, 474 cases more than the same period the previous year. In this city, there are nearly 30 conflicts concerning private lending every day. The amount of these cases added up together is up to 930 million RMB, 315 million more than the same period the previous year.

Zhejiang is not a stand-alone example. Since February 2011, many high-interest private lending cases involved huge amounts of money came to light, and some bonding companies were in such heavy debt that the amount was many hundreds of millions of yuan. In April 2011, Jin Libin, a businessman from Baotou, Inner Mongolia, burned himself in his Audi, leaving an unpaid debt of 1.2 billion RMB.

Private lending has a long history.

Many creditors are very proud that they have far less bad debts than the banks. Private lending is active in circles of family, friends and those one knows very well. Unlike what others might think, the credibility is based on bonds of blood, friendship and geographical connection instead of the methods of the mafia world. People lent money to others because they “know where the debtor is rooted” and that they believe “nobody will burn the bridges while they have to cross the river every day.” For nearly five to six years, though, the private lending seems to have developed beyond the “circle of family and friends,” and some underground banks are controlling tens of billions in cash. They have even started branches in more than twenty cities in China.

Fragile Links

Those who are involved in the private lending bidding meetings are from all walks of life: businessman, workers, peasants, teachers or even public servants from the Public Security, Prosecution, Court and Financing Systems. Some statistics show that 89% of families and 59% of enterprises are involved in private lending.

At any airport or train station in Zhejiang province, you can easily spot advertisements for private loans. Walking in the streets of Wenzhou, you will see more than twenty consignment shops, pawn shops and bonding and consulting companies.

A study on private lending in Zhejiang province shows that in 2010 alone private lending surpassed 150 million RMB. On the other hand, between 2008 and 2010, there were 61 cases of illegal funding in a small county, involving a sum of 183 million RMB. After the financial crisis, the scale of private lending in Zhejiang is growing.

Li Yongxing, who wrote the study, says that private lending in Zhejiang has gone beyond circles of friends, and out-of-city or even out-of-province lending is becoming more common than before. In private lending bidding meetings, it is considered normal that you don’t know half of the people present.

Those who are involved in the private lending bidding meetings are from all walks of life: businessman, workers, peasants, teachers or even public servants from the Public Security, Prosecution, Court and Financing Systems. Some statistics show that 89% of families and 59% of enterprises are involved in
private lending.

The backdrop for private lending is that it becoming harder and harder to get loans from banks. Since early 2010, the Central Bank has raised the interest rate of deposit reserve for 12 times in a row.

The need for funds will not shrink because banks stop giving loans. Zhou Dewen, president of the Wenzhou Medium and Small Enterprises Association, wrote in an article, “If the tight restrictions on the money market were not to change, if the government didn’t take any action to help, and if the business environment doesn’t improve, 40% of medium and small enterprises in China will cut production by half or even go bankrupt in the following six months.” He believes that this crisis is even more menacing than the one in 2008. In 2008, enterprises might receive no orders, but now they dare not start production even if they get orders because they don’t know when their cash flow will stop.

“The interest rate is already raised to 10 percent per month, and a loan with the interest rate of 6 percent would be considered a good deal. Most of the small enterprises have no power to negotiate the price,” says Yin Fei, founder of daibang.com.. He has been promoting a “pro-charity” financing service to the countryside of China by giving small loans, and he has been observing private lending for years. “For an enterprise with annual sales of 300 to 500 million RMB, it is basically trying its best to compete in the market where the profit rate is rather low. At such high financing cost, it is impossible to do
business.”

Yin Fei observed that many small and medium enterprises borrowed money in the past to develop, while today they do it to survive. Some enterprise owners have sold their factories to become creditors.

It is too early to say whether Zhou Dewen’s forecast that “40% of medium an small enterprises would go bankrupt” is true. However, none of the hundreds of pawn shops in Zhejiang Province are going bankrupt, and as a matter of fact their business is better than ever. With the borrowing and lending chain becoming longer and longer, creditors rarely see where their money flows to. This marks a big change in the underground financing system in Zhejiang
province.

“I used to have three rules: I won’t lend money to anyone living outside the radius of 100 kilometers, or anyone who never dined with me before or anyone whose machines are not running with at full capacity in the factory,” an anonymous creditor in Yiwu told China Entrepreneur. “Now it is not that strict any more. Even if you lend the money to people you know, you won’t know where the money goes. Strangers usually pay a higher interest rate.” Now he has summed up his rules in one ambiguous term: “As long as he looks reliable.”

Those who look reliable always turn out to be the least reliable. The credit cost for both creditors and debtors is increasing.

Borrowers need to be aware of where the money comes from. “Never borrow money from those with a hard-core background. The most fatal thing is not necessarily how much you have borrowed, but from whom you have borrowed,” this anonymous creditor said. “Make sure your money is from a spectrum of sources instead of being controlled by just one person.” Large sums of money come from local governmental officials or even the mafia world. Such money is considered the most dangerous. Some money flows out of the official banks secretly, usually through the families of the bank employees. In these cases, whenever there is any sign of problems, the bank people will be at your door-step, making sure you pay back the money in time. This can cause a domino effect.

A new tendency has been observed in the market in the past two years. Industrial companies have not been doing well, and creditors are becoming more sensitive to the safety of their capital. Some enterprises far from bankruptcy may just be having temporary cash flow difficulties, but the creditors show up the day the news is out. Sometimes a couple of text messages may ruin a business owner.

Absence of supervision

“To put it simply, the central government has passed on its supervision responsibilities to local government. But the local financing office does not have the supervision power, and honestly speaking, they have no supervision capacities either. Their function is not to supervise financing. So they will continue to shake off this responsibility to even lower levels.”

So far there is no law or regulation naming the supervising institution of private lending in China.

An anonymous bank expert said that China Banking Regulatory Commission (CBRC) claims that its payroll is too small to supervise everything in a meticulous manner. The result is that the supervision of these small financing institutions are subject to the financing office of every province. “To put it simply, the central government has passed on its supervision responsibilities to local government. But the local financing office does not have the supervision power, and honestly speaking, they have no supervision capacities either. Their
function is not to supervise financing. So they will continue to shake off this responsibility to even lower levels,” the expert said.

“Actually, the supervising department is acquiescent about the existence of private lending. They focus not on how high the interest rate is, but where the capital comes from,” a man in charge of a local commercial bank in Zhejiang province told Chinese Entrepreneur. For this reason, the central government has set up a team to crack down and punish illegal funding. “But the thing is, the legal definition of illegal funding is rather ambiguous. If you just follow the book, ten thousands of people will be sentenced to death. But how many do you catch a year?”

Jiao Jinpu, former vice president of the Research Bureau of the Central Bank and Party Secretary of the Graduate School of the People’s Bank, says, “Small-loan financing companies, pawn shops and bonding companies are all legal, but with the shrinking money market, there are changes in their businesses. In addition, investing or consulting companies are giving loans. Even some venture capital investing companies are doing it.” He pointed out that as soon as the banking system tightens its money market, all the hands will turn to creditors outside the system.

Tightening the loan market has only pushed business to operate underground, and eventually the situation will spin out of control.

Jiao Jinpu believes that private lending happens spontaneously, and it is impossible to supervise. “Private lending is a rough concept. It is hard to say how to supervise it or guide it.” He believes that the boundary for supervision of financing is as simple as this: Is someone is playing with his own money, he has every right to do so: if he is using other people’s money, supervision should move in.

State financing supervision departments are said to be considering making regulations on private lending that would be put on trial in Zhejiang province. The key points are a clarification of what constitutes illegal financing and fraud in fund-raising, and to have every loan registered for future reference.

However, some people are not very optimistic about such regulations. The reason is this: private lending is a financing phenomenon that is usually non-open, regional, market-oriented, profit-oriented and vast in scale. So to cast sunshine on this profitable practice is not necessarily what people would like.

“To truly put private lending under sunshine means the laws and policies have
to be open about the money lending from individuals,”says Jiao Jinpu. He pointed out that the Central Bank once proposed a creditor regulation. According to current laws, individuals may give each other loans, but if the creditor charges any interest, it will no longer be protected by the law. Moreover, enterprises are not allowed to borrow and lend money to each other. This regulation has been modified many times, but so far it is has not been shown to the public. One of the reasons is that the Central Bank and the China Banking Regulatory Commission can not reach agreement in it. The Commission is the most cautious about it.

In July 2011, Huang He, president of Jiangnan Leather Co. Ltd., fled overseas to avoid his heavy debts. None of his high-interest-rate creditors went to the Wenzhou Supervision Committee to register as a creditor, because as soon as they register, they will be investigated. If this happens there will be a run on that person’s lending operation, eventually leading to bankruptcy or even prison. This fear is not unreasonable, because it happened to Wu Ying’s eleven creditors.