Illegal fundraising diversifies

China saw a rise in cases of illegal collection of funds in recent years, and those involved in these crimes have shifted their focus from real estate to new areas such as investment and financing products, an official said Friday.

In recent years, on average, there have been around 2,000 cases nationwide each year, with the sums involved accounting for up to 16 percent of the total of all economic crimes, Liu Wenxi, a deputy director of the Economic Crime Investigation Department at the Ministry of Public Security, told a press conference in Beijing Friday. 

The total number of illegal fundraising case filings in the top 10 provinces took up 77 percent of total nationwide in 2012, Liu said.

The sectors involved in illegal fundraising have expanded from traditional sectors such as real estate, mineral resources and agriculture to new areas including investment and financing products, private equity (PE) as well as other wealth management products, according to Liu.

The remarks came after china.com.cn reported early this month that Guo Wenya, a former vice president of a subbranch of China CITIC Bank in Zhengzhou, had been selling unauthorized wealth management products to bank customers since 2011, promising returns 10 times higher than the bank offered.

Guo used the money to offer loans with high interest rates, but later failed to recover the loans, causing a total loss of 40 million yuan ($6.48 million) to more than 110 customers, the report said. 

 "Investors who are eager to amass great fortunes instantly are more likely to fall into these traps," Zhao Xijun, a deputy dean of the School of Finance at the Renmin University of China, told the Global Times Friday. 

"The lack of diversity in terms of legal investment channels creates room for illegal fundraising methods," Zhao said. 

Meanwhile, small and medium-sized enterprises in China, which help create majority of jobs in the country, find it difficult to qualify for loans from banks and financial institutions, which usually favor large and State-owned businesses. These smaller enterprises often have to resort to loans from private lenders.

"More than 90 percent of small and medium-sized enterprises in the country can not get loans from banks," Zhou Dewen, director of the Wenzhou Council for the Promotion of Small and Medium-sized Enterprises, told the Global Times.

The State Council, the country's cabinet, introduced a pilot financial reform last year to help regulate private financing activities in Wenzhou, a city in East China's Zhejiang Province, known for its large private financing sector.

"The distinction between private lending and illegal fundraising is very blurred throughout the country," Zhou said.