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Funders and representatives of financing companies gathered in Wuzhen township in China's Zhejiang province for the 2015 meeting of Chinese financing businesses from April 24-26, reports the China Economic Weekly.
The concept of financing has surfaced in China amid heated stock trading that boosted the benchmark of A-shares trading to the 4,400-point mark. Financing companies are providing clients with loans significantly larger than the money the borrower has in possession. This borrow-lending operation is mostly performed over P2P online financing platforms.
Funders in Wenzhou, where private funding activities are warm, are keen to take their share. However, financing operations are not subject to any legal restrictions in China.
Last year, the funds involved in securities and futures financing transactions reached over 300 billion yuan (US$48 billion), and some financing companies have allegedly been involved in illegal operations, the organizers of the Wuzhen meeting of financing companies disclosed.
According to sources from the finance sector, the most popular funding operations are lending money to stock investors in the bullish market. An operator within a P2P financing company said that investors who have a knack for speculation will borrow money.
On a ratio of one to five, if an investor has capital of 10,000 yuan (US$1,600), "we can raise funds at the sum of 50,000 yuan (US$8,060)," for the investor, so that the investor can have a bank deposit of 60,000 yuan (US$9,671) for stock speculation, said the loaner.
He noted that operations on existing P2P financing platforms are divided into two forms. The first is financing companies provide funding services with money from their own pockets, while the
second is financing companies setting up on an online platform, where they invite individuals to purchase funding projects for stock speculation.
These finance operations, however, fall into a gray area in terms of monitoring and supervision. The business is dominated by uncertainty and risk.
Zhou Jingtian, CEO of online finance company Xunquanwang, said his company's funding sources are mainly private loans and often illegal, or at least legally undefined.
According to Supreme People's Court judge Lo Kuoting, illegal fund-raising can be categorized into two kinds of offense: first, taking people's deposits illegally for business operations; and second, committing fraud through collective fund-raising.
The first kind of offense does not involve seizing and occupying people's assets on purpose, Lo said.