hanghai, February 5

When Wang Dehong saw the female boss of a Chinese online lender interviewed on state television CCTV, promising both safety and high returns, the stay-at-home mom thought she had found her ideal investment.

So she put her savings of 180,000 yuan ($27,000) into the financial products of Ezubao, or ‘easy rent treasure’, one of hundreds of peer-to-peer (P2P) lending firms in China that match lenders and borrowers through the internet.

For six months, she received regular messages on her smartphone showing payments into her Ezubao account, earning her as much as 12.8 per cent annually — far more than she could hope to get from a bank.

In December, they stopped.

Now the firm has collapsed, with police saying it bilked 900,000 investors out of $7.6 billion — among the biggest financial frauds in recent history.

The state broadcaster this week paraded some of the 21 arrested executives involved with Ezubao — including the same executive it interviewed in May last year — confessing the business was nothing more than a ‘Ponzi scheme’.

The scandal highlights both poor regulation in the world’s biggest P2P market, and how China’s small investors fail to

recognise financial risk.

With China’s one-year bank deposit rate now standing at just 1.5 per cent and few choices for investment in the face of a volatile stock market, declining currency and weak property values, customers flocked to Ezubao’s ‘guaranteed’ return of principal and interest rates of nine to 14.6 per cent.

“It all looked very reliable, compared with the rest of the investment channels I saw,” said Wang, the mother of a five-year-old son, who has turned back to the internet to sell shrimp from her native Shandong province at 64 yuan a kilogramme to make ends meet.

CCTV’s interviewee was Zhang Min, president of Ezubao’s parent firm, who said its products were better and safer than other assets.

In a television advertisement also shown on CCTV, Zhang appeared in a white jacket and tan skirt with a slogan urging investors to ‘have success’ with Ezubao.

Clad in an orange prison uniform, a tearful Zhang said in a broadcast on the same television network on Monday: “It was a typical Ponzi scheme.” Such public confessions while in custody are a regular event in Communist-ruled China, with critics saying there is no way to tell whether the detainee is speaking under duress.

Police quoted by state media said Ezubao concocted fake projects to attract investment and pocketed funds instead of passing them to borrowers to generate a return. One officer describing the firm as a swindle that moved money from the operator’s ‘left pocket’ to its ‘right pocket’.

China has nearly 2,600 platforms described as P2P businesses, as per website www.wdzj.com which tracks industry, with transactions valued at around $150 billion last year. The sector has created a source of funding for small, private firms, which are shut out of state-dominated banking system.