Investing in China Took Her From Rags to Riches to Death Row

Wu Ying, head of the Bense Holding Group, stands on trial. AP When a businessman makes a bad bet in America, he's apt to lose money. But as a couple of news items out of China this week reveal, doing business is quite a bit dicier in the Middle Kingdom. Make the wrong bet there, and you may lose more than just money. You may lose your life.

That's the fate awaiting two businesswomen sentenced to death by Chinese courts last week. The first, "rogue trader" Wang Caipang, is said to have defrauded investors of some $15.9 million borrowed for the purposes of buying equipment and property, and relending through "credit guarantee" firms. Instead, Caipang is said to have used the borrowed funds to speculate (badly) in the futures and gold markets, losing the bulk of the money.

If this story so far has you cheering "Hurray for China! Too bad Bernie Madoff was charged in America," then hold on a second. The allegations against the second defendant going to the gallows were a bit less clear-cut.

In fact, while greater in scale than the Wang Caipang case, the "fraud" alleged against 31-year-old Wu Ying hardly sounds criminal at all.

As reported on Bloomberg, Wu borrowed some $122 million from her investors, claiming that she would use the funds for the general business purposes of her "Bense" group of companies. Like Caipang, Wu wound up losing about half the money -- but there's a key difference here. Wu used the money for precisely the purposes she promised.

Banking in the Shadows

Wu's case illustrates a crucial "missing link" in China's financial system, a segment referred to locally as "shadow banks" (not to be confused with America's so-called "shadow banking system," in which real banks repackage and sell to investors loans they've issued to consumers, as a way to add leverage to their balance sheets).

In China, the situation is a bit different:
  • On the one hand stand small businesses, who struggle to win loans from China's big, state-owned banks, and as a result often lack access to the capital they need to grow their businesses.
  • On the other hand stand investors who, even if they have cash, often lack a viable place to invest it. The same state-owned banks that won't lend to small businesses offer their depositors interest rates capped (by law) at 3.5% per year when Chinese inflation is running at 5.4%.
In the U.S., a situation like this can give rise to loan sharking, and that's basically where Wu wound up -- borrowing large sums from loan sharks (albeit very well-heeled ones, including both government officials and bank employees).

The daughter of a poor farmer, Wu parlayed a job working in her aunt's beauty parlor into a multimillion-dollar empire comprised of salons, a clothing store, a car rental company, real estate investments, and loan offices.

To finance this business, she reportedly paid her private investors interest rates as high as 0.5% per day (roughly 518.5% per year) for access to their money. But even in China's go-go growth economy, it's hard to keep up with these kinds of rates. Add in a turndown in the real estate market, and a slowing economy generally, and Wu wound up losing about half the money borrowed from her financiers.

'Off With Her Head!'

That's when things got really bad. Between the high level of publicity she received from her business success, and the fact that how she got her financing was technically illegal, Wu quickly attracted the attention of state prosecutors. Arrested and sentenced to death, she joins Wang Caipang and more than a dozen other individuals convicted of illegally attracting money from individual investors.

Even worse, once arrested, Wu was apparently asked to name names, with the result that some of her investors got themselves arrested as well.

Conspiracy theorists (such as, for example, The Economist) are now arguing that this is the real reason Wu now sits on death row: that her other investors have decided that "dead businesswomen tell no tales."

At least in America, when you can't make the payments to your loan shark, the worst you have to fear is a pair of busted kneecaps. Our gangsters don't co-opt the government to do their dirty work.

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This is why China needs to shed communism. As long as you have large government that is clueless about free markets and business ethics you have poor regulation that would prevent fraud like this and you have a sledge hammer mentality of meeting out justice. Thousnds of young chinese adults are executed every year on charges that would be a misdemeanor in the west! China will never have true capitalism as long as you have a communist state. I fear our dear leader admires their system...

April 21 2012 at 4:48 PM Report abuse rate up rate down Reply

With regards to the last sentence in the article I have two words . . . Labor Unions.

April 17 2012 at 8:44 PM Report abuse +1 rate up rate down Reply

We owe too much money from China, they can invade America and execute all of us for losing the money.

April 17 2012 at 8:41 PM Report abuse rate up rate down Reply
1 reply to letmay8's comment

I love all the economists who run rogue on all these AOL/HuffPo message boards. The moral authority and experts at everything. Geeze..

April 20 2012 at 1:14 PM Report abuse rate up rate down Reply
Michele Brancato

and the point of the article is?? lets let the wall street crooks off like Madoff? after all the distruction they have done with the blessing of our own government I say china is on the right trail I bet the next wave of investor as AOL news calles them will think twice off with there heads I say

April 17 2012 at 7:32 PM Report abuse rate up rate down Reply

No need to plead no need to bleed. The Chinese and Ayn Rand are Siamese twins separated at birth a long time ago in the evolution of blood suckers. They make money on risk. Not what we all risk. Thats ***** money playing is what we do. They pay for life and over the dead bodies of the weak and always at their expense. Then when caught out they plead persecution and innocent.

The Chinese politicians and their security apparatus these days prey on the successful. mainly women capitalists in their midst. They give them patronage in exchange for other favours which inevitably includes sex and a share of their gains. This is achieved by firstly luring them into a connected political network with local and federal politicians and security apparatus.

When prosperity reaches that dizzy height they ask for control of the company in exchange for being mistress to the big man in the area. Thats when things fall apart. Women are known to play one Big man off another and then get caught in the squeeze and get thrown to the dogs or a bullet.

There are numerous women in this position now hiding out in places like the UK and Australia and dare I say the US as well. Canada is not such a choice destination when in trouble because the South East Asian Triads are no different. They will kidnap them and hand them back to the Chinese or exploit them for everything they have for their "freedom" outside mainland China.

How do I know? I am pat of a group that offers refugee counselling and make application for refugee visas for such individuals.

April 17 2012 at 7:02 PM Report abuse rate up rate down Reply

They are puting her out of her misery! That's humane!
Try facing the USA courts for non payment of child support after losing ones job & giving all ones savings to the other spouse via the State!
That's in humane! Only in America!!!!!

April 17 2012 at 4:29 PM Report abuse +1 rate up rate down Reply

The author of this article is not only weak in math, but has a pathetic interpretation of justice. His comparison of "Gangsters" here is moronic. He is suggesting perhaps underworld crime syndicates, such as the Mafia etc. break knee caps to collect a debt ? What a stupid analysis.

The criminals that contaminate our enviroment as well as cause the illnesses and deaths associated with the pharmaceutical industries, are the Real Gangsters that get slapped with a pathetic fine and recall. The chinese execute individuals responsible for heinous crimes against their citizens irrespective whether they be violent, financial or health related. If the U.S.A. did the same, you would have a far better and safer country to be proud of.

April 17 2012 at 2:43 PM Report abuse +1 rate up rate down Reply

Now THAT'S what we need here!!!!!! On the flip side, if we were to enforce the same kind of laws here in the U.S., the population inside the Beltway as well as on Wall Street would be drastically reduced overnight.

April 17 2012 at 2:35 PM Report abuse rate up rate down Reply

They should be doing this to speculators on Wall street and definitly to congressmen and women who are on tax payers time. Banking CEO hedgefund operators.

April 17 2012 at 2:21 PM Report abuse rate up rate down Reply

What about the money that China has owed us for many years where no payment or interest has been seen

April 17 2012 at 12:40 PM Report abuse rate up rate down Reply