There is a special kind of underground loan in China. But it is not from a criminal. It is from Chinese officials. Some officials are masters at it. And recently, Chinese official media blew the cover off a part of this illicit segment.

It’s not a crime in China!

Earlier this month, China’s two top anti-corruption agencies, – Central Commission for Discipline Inspection and the State Supervision Commission of Jiangxi Province – notified seven Chinese officials. Among them are:

  • A municipal party secretary.
  • A county party secretary.
  • Three deputy mayors.
  • A hospital director.
  • An inspector from the Provincial Department of Agriculture.

They all obtain illegal benefits by lending at  high interest rates.

Among them, Fang Baichun, the deputy mayor of Fuzhou City, made the most. He acquired a profit of 16.5 million yuan, or almost $2.5 million. 

Xiong Hanpeng, president of the Affiliated Hospital of Jiangxi University of Traditional Chinese Medicine, earned the least with 3.9 million yuan, or $580,000.

The notice called their acts “violations,” but did not label them “illegal.” In Chinese law, usury or loansharking itself is not a crime. The only concern is that, if the lending rate is more than four times the bank’s interest rate for similar loans, then the interest on the excess is not protected by law. That’s it. Borrowing money from a financial institution and re-lending it at a higher interest rate only constitutes a misdemeanor.

Who’s involved? Where does the money come from?

Because it is not an easy crime to convict, this money-making method is very popular among middle-level officials within the CCP. Last year, the CCP Disciplinary Committee brought to light more than 20 such cases. Some officials have even become “professional” lenders.

In particular, lending for high interest is more common among the police. In the first half of last year, China launched a three-monthlong rectification of the political and legal teams. Officials identified more than 8,200 cases of police illegally joining in these high-interest shareholding loans.

So, where did their money come from? Some of them “borrowed” from their bosses or subordinates with low or no interest. Some embezzled the money. Others used bribe money from outside parties. In essence, all of these funding sources are acquired by public power.

Officials shake hands with gangsters

Although Chinese officials would not always ask for collateral or covenants to secure a loan, default itself might come with severe consequences.

According to a report by the Central Commission for Discipline Inspection last December, Su Hao is a deputy director of the Wenshan City Statistics Bureau in Yunnan Province. He got to know Shi Mou, the owner of a liquor company. Shi told Su that he could invest in his company and receive high monthly interest. Su was interested in the deal. He “borrowed” 300,000 yuan, or about $44,000 and loaned it to Shi in 2013. From the second month forward, Su received 7,500 yuan, or more than $1,100 in interest from Shi every month. This payment equates to a monthly interest rate of 2.5%, or an annual interest rate of a whopping 30%.

After Su received regular interest for more than two years, by early 2016, Shi’s business went down and he could no longer pay the interest. Su then asked him to return the principal, but Shi found many excuses to refuse. Later, Shi went into hiding from Su, and didn’t answer his phone. This made Su furious, but he could not report it to any officials.

In early 2017, Su Hao found Dai Mou, a small underworld leader, and asked him to help with the debt collection. Dai brought a group of gangsters to Shi’s company and shops to harass, and follow, Shi. Wherever Shi went, they would follow him. Shi was so frightened that he didn’t dare go home.

Under the threat of this soft violence for three months, Shi broke down and returned the principal to Su Hao in six installments. Dai, the debt collector boss, received a hefty sum of 160,000 yuan ($24,000) from Su Hao as payment.

Officials also directly loan money to triad members to ensure a stable interest income stream. Zhu Honggen, the vice mayor of Shangrao, Jiangxi Province, did just that, helping him earn 7.6 million yuan, or about $1.13 million. Besides, these officials also protect the underworld, acting as their so-called umbrella.

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