New York Times
Javier C. Hernandez and Iris Zhao
TIANJIN, China — Some look like high-tech firms, promising young college graduates a fast track to riches. Others pose as charitable groups on a membership drive, or companies building a sales network for a new product. Tens of millions across China are signing up — and learning that all is not as advertised.
Behind these groups is a looming challenge for the ruling Communist Party: A proliferation of pyramid schemes that have attracted enormous followings and huge sums of money, exploiting — and exacerbating — widespread anxiety over a slowing economy.
More than 40 million people are now ensnared, perhaps many more, according to the China Anti-Pyramid Selling Association, a nongovernmental group. One scheme shut down this summer was reported to have registered more than five million people alone, while another in southern China took in at least $54 million. Last year, the authorities investigated more than 2,800 cases, a 19 percent increase from 2015.
New recruits are asked to hand over cash and persuade others to do the same. The more people they bring in, the more they and their bosses earn. But if too many people quit or the schemes run out of new members willing to pay, the pyramids collapse, bankrupting families in a chain reaction and adding to the strains on the Chinese financial system.
The schemes take many forms, but China’s news media has labeled the worst of them “business cults” because they masquerade as elite companies or start-ups hiring college graduates, use high-pressure indoctrination tactics and demand cultlike loyalty. Sometimes, they resort to kidnapping and violence to keep the money coming in.
“They promise the dream of making a fortune,” said Liu Libing, a former victim who runs a business helping families find missing relatives. “In reality, they brainwash you and hold you against your will.”
The government announced a nationwide crackdown on the schemes in August after the death of Li Wenxing, 23, a recent college graduate whose body was found in a pond in the northern city of Tianjin.
Mr. Li had moved to Tianjin for a position as a software developer, desperate for a job his parents in rural China would deem worthy of the education they helped pay for. But when he showed up for work, the people there demanded he borrow hundreds of dollars and hand it over, according to his family and the police.
Mr. Li’s death and a spate of similar cases have prompted a national uproar, in part because college graduates have long enjoyed special status in Chinese society. For many Chinese, the groups preying on them are a symptom of broader problems in the country: vast inequality, a crisis of values and a freewheeling economy that can sometimes resemble the Wild West.
The party has long worried about the destabilizing impact of pyramid schemes, which have thrived in China since it began loosening controls on the economy in the 1980s. For many years, the authorities even banned multilevel marketing tactics, likening companies such as Amway and Avon to “secret societies,” before lifting the prohibition in 2006.
But the government recently warned that pyramid schemes were spreading faster and getting bigger, in part through social media. The high returns they promise are all the more enticing as economic growth has slowed, especially given the dearth of reliable investment options for ordinary Chinese.
A key concern has been the unflinching loyalty that some groups inspire, threatening the party’s tight grip on society. A recent mass protest in Beijing reinforced such fears: The demonstrators were not demanding compensation or an investigation into a pyramid scheme but protesting the arrest of its founder.
The state-run Legal Weekly newspaper later reported that in the span of a year, more than five million people had enrolled in that scheme, Shanxinhui, or Kindness Exchange, which had presented itself as a sort of charitable enterprise.
While pyramid swindlers in China have traditionally focused on older people, the business cults exploit highly educated youth from poorer families, law enforcement officials say. In doing so, they are seizing on the anxieties of a generation willing to go to great lengths to avoid the shame of unemployment.
After expanding access to higher education, China now suffers a glut of college graduates and a scarcity of high-paying jobs. While a college degree was once a ticket into the middle class, many recent graduates are now stuck in low-paying positions or have given up looking for work.
Hundreds of young people across China have been caught in the schemes in recent months, according to Chinese news reports, including many in Tianjin, a cosmopolitan port city and tech hub near Beijing.
The groups have grown skilled at playing into the ambitions of young Chinese eager to join start-ups. Victims are often lured to remote rural areas, where they live in closed communities and are indoctrinated with rags-to-riches tales. Some groups advertise on popular job-hunting sites and explain drab facilities and cramped conditions by saying they are cultivating a “start-up environment,” former members said.
Several participants have died under mysterious circumstances.
Zhang Chao, 25, suffered heatstroke and died while being held by swindlers in Tianjin in July, the police said. His body was dumped alongside a road.
Lin Huarong, 20, who had fought with organizers of a pyramid scheme, was found dead in a river last month in the central province of Hubei.
Qu Pengxu, 24, was discovered floating in a lake in March. The police said he appeared to have been fleeing a group near Tianjin.
Many young people join and stay in the groups voluntarily, excited by promises of fancy cars, overseas travel and lavish meetings where money is handed out in dramatic fashion.
China Youth Daily, a state-run newspaper, recently reported on hordes of young people with “dreams of a gold rush” flocking to a hot spot of pyramid schemes near Beijing. Leaders of one scheme told participants they could turn an investment of $7,500 into nearly $700,000.
In reality, law enforcement officials say, many of the investment schemes are sophisticated ruses with the sole purpose of enriching the founders.
Liu Jinpeng, 22, a student in the southern province of Guangdong, said he was excited when his girlfriend got him a summer internship at her company, which she described as a biotechnology firm. But he realized something was wrong when he arrived for work in early July.
She suddenly told him the company actually specialized in cosmetics. The company then took his phone and asked him to pay a membership fee of more than $400.
Mr. Liu said the group assigned someone to guard him round the clock for nearly three weeks and packed his schedule with activities to brainwash him.
“Every single day your mind wouldn’t have time to rest,” he said in a telephone interview. “They don’t give you any alone time.”
He tried throwing a note out a window with the words “Save me.” Eventually, he managed to retrieve his phone and get a message to the police, who rescued him but did not make any arrests, he said.
To win the trust of new members, the groups often deploy loved ones and trusted friends to offer testimonials.
Li Zhengliang, a college student in eastern China, said he gladly accepted when a high school friend invited him last year to visit Tianjin. But his friend then introduced him to young men who spoke about making millions of dollars by tricking people into investing in a mysterious product. When he tried to leave, the men blocked his way and threatened him with a knife.
“I was so desperate and so scared,” he said in a telephone interview. “I thought I was doomed.”
Mr. Li escaped three days later and reported the group to the police in Tianjin, he said, but they dropped the case after only chastising the young men.
Li Wenxing, the young man found dead in a pond, was duped by a posting for an $800-a-month position as a Java programmer at the Tianjin branch of a real Beijing technology company.
Mr. Li had hoped the job would allow him to repay his parents for the money they spent on his programming classes, according to a friend, Wang Xing. He was so determined to save money, Mr. Wang said, that he skipped going out to meals.
The police have detained five members of a 7,000-person group known as Diebeilei in connection with Mr. Li’s death, according to the state news media.
The authorities have said it was unlikely Mr. Li was murdered, but they have not determined how he died, according to an uncle of his who asked not to be named. Friends and relatives of Mr. Li said the government considered the case politically sensitive.
In his final phone call home in July, the uncle said, Mr. Li told his parents not to give money to strangers.
Karoline Kan contributed research.
Follow Javier C. Hernández on Twitter: @HernandezJavier.