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coverage. At an industry conference hosted by Ezubo in June, government officials, corporate leaders, and legal experts discussed the development of Internet finance and lauded Ezubo’s business model. The company promoted itself with TV commercials and by placing its logos on seat covers of the Shanghai-beijing high- speed train.
In early December, when Ding and Zhang realized that new investment inflow could no longer meet interest payments for the old investors, they started to move assets, destroy evidence, and prepare to flee, according to their confessions. On Dec. 8 police arrested Ding and Zhang. Police used two excavators and dug for 20 hours to unearth 80 bags of documents that Ezubo executives had buried 20 feet underground on the outskirts of Hefei, in Anhui province, Xinhua reported. Investigators found the company had spent heavily to buy details on companies to help it fabricate investment projects.
The P2P industry has grown quickly in China, lending 982 billion yuan in 2015, almost quadruple the total from the year before. Authorities let online lenders flourish as a way for small businesses to get financing without turning to back-alley shadow bankers. In 2012, as P2P began to take off, only 3 percent of China’s 42 million small business owners could get bank loans, according to the World Bank.
“I think the government allowed this all to happen because it was desperate to pump money into the private economy as all the other slowdowns started to happen,” Steve Dickinson, a Qingdao-based lawyer for Seattle firm Harris Moure, said in an e-mail.
Policy appears to be shifting. In December the country’s banking regulator said 1,000 P2P companies were “problematic,” and it announced draft rules to restrict such lenders and pledged to “cleanse” the market. “The Chinese government is supposed to be seeking stability,” said Dickinson. “This type of widespread financial disaster is obviously not supportive of stability.” The bottom line China’s peer-to-peer lending industry is under suspicion after the discovery of a Ponzi scheme with 900,000 victims.