China: Mutiny On The Buses

5th July 2017 in
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It was supposed to be yet another sign of China’s new industrialised dawn, but has ended in acrimony and embarrassment for all concerned. The Beijing Transit Elevated Bus (TEB), or ‘straddling bus’, a bold plan to allow public transport to run over cars, thus reducing travel time and congestion, has this week been revealed as little more than an investment scam.

Originally the signs seemed good, with $19m USD raised by the end of 2016 (at a 12% annual interest rate) by Chinese investment firm Huaying Kailai to complete the project. Tracks were laid in Beidaihe and a scale prototype of the TEB had been constructed to great fanfare. But then the cracks started to show. Quite apart from the practical issues – such as, how would tall vehicles fit under the TEB, and how would it go around corners – the Chinese media had begun to report that the entire venture was nothing but a scam. With the CEO of Transit Elevated Bus Company, Bai Zhiming, also being the founder of Huaying Kailai, allegations arose that the entire scheme was nothing but an attempt to coerce customers into taking financial products from the latter company.

Bai and 31 of his fellow Huaying Kailai employees have been arrested and the TEB project is confirmed dead in the water. However it raises wider concerns about the degree to which China still falls prey to fraudulent investment projects and ‘shadow banking’. There have been a number of cases in recent months of online financial platforms offering big returns for current investment but actually being a complete scam, or a way of increasing take-up on an overpriced service.

While not technically illegal, the recent collapse of high-interest fundraising schemes including Ezubao and Fanya, and the crackdown on high-interest fundraising has prompted investors to reconsider the wisdom of taking up any offer in China. Moreover, it raises the ugly spectre of actual criminal activity. Bai Zhiming, for instance, was also found to be running “fake social organisations” in a deliberate scam to raise finance and is accused of outright illegal trading over the raising of TEB finance. It also appeared that, when financial concerns arose in December 2016, he and his fellow managers ‘just drifted away’ – the very definition of suspicious activity.

None of this would have been possible without the tempting nature of the TEB product, or the willingness of donors (including, it seems, local authorities) to invest. In what is still a largely unregulated sector, the dangers remain high and the risk of becoming involved in some sort of scam is equally strong. Whether the Chinese government is passively or actively facilitating financial sector crime is, too, another concern. Notably the Fanya Ponzi scheme (for such it was) has passed totally unanswered by Beijing – perhaps because government and state-owned banks are believed to be deeply involved.

While online fraud continues to bedevil domestic Chinese, for the financial sector as a whole the biggest concerns are the lack of proper regulation and action taken by authorities to clamp down on crime. Only through positive, pro-active action – which admittedly starts with individual due diligence on a proposition but which must be replicated by governmental oversight – can frauds such as TEB be stopped. The TEB project may be dead, but the majority of criminal actors in China are still getting a free ride.

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