◎ Expect more cases like Lü Shangjian’s to surface in the near future.
On Jan. 4, Suzhou City public security bureau announced the arrest of Lü Shangjian, the controlling shareholder, chairman, and CFO of Chinese technology company Kingray New Materials Science & Technology Co. Ltd., for “illegally siphoning public deposits.”
On Dec. 15, 2017, Kingray announced that they had lost contact with Lü. The statement added that Lü might have embezzled 5.2 million yuan (about $800,000) of company funds, placing the company in a precarious position.
On Jan. 3, Kingray filed a report with the Suzhou police. The following day, the company filed a report with the Xuzhou police. Suzhou and Xuzhou are in Jiangsu Province off China’s east coast.
The backdrop: Aside from being Kingray’s controlling shareholder, Lü Shangjian is also the chairman of Jinlian Group, a holding company with several publicly listed firms both inside and outside China. Lü is a leading executive, shareholder, and legal representative of Jinlian Group’s fintech, commercial factoring, and other subsidiary businesses. Previously, Lü was the vice president of the Bank of China (BoC) Jinchang branch in Suzhou City.
Lü’s Jinlian Group and BoC’s consumer finance arm have some joint ventures. BoC Consumer Finance is a joint venture of the Bank of China, Bailian Group and Shanghai Lujiazui Financial Development Co., Ltd., and its products include various fintech services. Customers can get single loans not exceeding 200,000 yuan from BoC Consumer Finance’s fintech services, and Jinlian Group handles BoC’s 200 million yuan fintech business in Jiangsu Province.
Jinlian Group’s consumer finance business has branches in over 30 cities in China and plans to expand its business network further.
Our take: China’s real economy isn’t doing well. For years, China’s financial institutions have been idling and misappropriating funds, and practicing arbitrage, resulting in the build-up of immense risk in the financial sector. Expect more cases like Lü Shangjian’s to surface in the near future.