Entrepreneurs face dilemma over funds

The execution of Zeng Chengjie, who was sentenced to death for fraud, grabbed the headlines recently but the root problem lies in China's financial system, said an article in China Business Daily (excerpts below).

The provincial court of Hunan might never expect that Zeng Chengjie's case would result in so much publicity.

While blaming the court for not sending the family a notice before Zeng's execution, the public also expressed doubts about the charge against him, namely "fraud in raising funds".

Quite a number of persons faced the same charge. Of them, the most well-known must be Wu Ying, a 32-year-old woman from Dongyang, Zhejiang province. She was sentenced to death in 2009 by a local court, but her death sentence was not approved by the Supreme People's Court.

According to the criminal code, "fraud in raising funds" refers to those who raise funds by fraud, for the purpose of illegally keeping them. What promoted these non-governmental entrepreneurs to raise funds through illegal means?

The root problem lies in China's distorted financial system, in which banks and other financial institutions mainly serve giant State-owned enterprises.

In contrast to SOEs burning money at will, it is hardly possible for private enterprises or individuals to get loans to start a business.

They have to turn to underground institutions, even friends or relatives for help. It is not uncommon for China's entrepreneurs, without a background of government contacts, to raise funds through unofficial means.

To get a higher GDP, local governments often encourage, even participate in, such fund-raising activities at the beginning. However, once the situation turns nasty, the local governments will intervene to protect their own interests, leaving ordinary people, including fundraisers, victimized.

In Zeng's case, when his company was going well, the local government issued an order that allowed only officials to get their invested money in his projects back. This meant that other investors, namely the public, were worried and flooded his office to demand their money back.

The local government officials are responsible for the crime, too, but none of them will get punished or even blamed.