China Create Capital Ltd burst into the headlines early last year when the little-known investment firm purchased a Hong Kong office building from Henderson Land for HK$9.95 billion ($1.27 billion).
Now the Shenzhen-based financial firm, which purchased the 22-storey office tower at 18 King Wah Road in North Point in January last year, is back in the headlines after its chairman and 43 other executives have been arrested for gangster-style fundraising, illegal detention of clients and other crimes.
China Create has been headed by Zhang Wei, a former PLA officer who now stands accused, along with his employees and partners, of using blackmail, harassment and illegal firearms to help boost the returns on his private equity firm’s investments, according to a government notice.
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China Create, branded by Shenzhen police as a “mafia-style gang”, allegedly lured in investors through an online fundraising platform, called “88 Wealth Network” which it started in 2013.
The peer-to-peer (P2P) lending platform listed fake or exaggerated investment projects to collect funds from the public and then loaned the money at illegally high interest rates. To help ensure their returns, the company is said to have threatened borrowers with detention, faked lawsuit documents and incited gang-like confrontations, the Shenzhen public security burean in a notice dated on April 10.
Established in 2004, China Create owned stakes in at least 10 Hong Kong-listed companies valued at a combined HK$346.8 million (US$44 million) as of March 19, according to annual reports and exchange filings reported by Bloomberg.
Zhang Wei, a towering 46-year-old Heilongjiang native and other China Create executives are now understood to be held in undisclosed locations.
Dodgy Lending Crackdown Continues
Zhang, who serves as a Shenzhen delegate to China’s National People’s Congress, as well as deputy chairman of Shenzhen’s commerce chamber of commerce, is said to own stakes in as many as 111 listed and unlisted companies in mainland China, according to business data provider Tianyancha.
Rumors have been circulating that Zhang and his group were under investigation since early January. Suzhou China Create, a Jiangsu-based unit of the company, said in a filing on January 3 that Zhang and several senior managers were assisting a probe by authorities.
The China Create Capital case is playing out in the mainland judicial system just under one year after Anbang Insurance boss Wu Xiaohui was sentenced to 18 years in prison for his own investment scheme, with charges of fraud and gangster-style fundraising central to that case.
China Create Capital’s acquisition in North Point last year was said to be backed by a unit of mainland financial giant China Taiping Insurance Group, although China Taiping has not been mentioned in these most recent reports.
The sale by Henderson Land set a new record for the largest office deal in the district of eastern Hong Kong Island, valuing the then-recently finished project at HK$30,170 ($3,859) per square foot.
Online Platform Sold Jets, Furniture, Wine and Real Estate
The funds for China Create’s real estate deals and other acquisitions came at least in part from its “88 Wealth Network” online lending platform, which it launched in 2013. The system offered alternative investment opportunities to retail and institutional investors, touting annualized returns of from eight percent to 13 percent. The underlying assets included Airbus A318 jets, high-end mahogany furniture, calligraphy, wine, watches and diamonds.
The platform, once lauded as a new fintech model, was selected as a strategic partner of the official Boao Forum for Asia in 2014 and even signed up renowned Chinese concert pianist Lang Lang as its spokesperson. Already in 2014, however, the local media had started to expose China Create’s suspicious dealings, highlighting how it controlled the peer-to-peer lending platform and acted as the borrower and the guarantor on transactions at the same time.
A filing by 88 Wealth Network in early 2017 said it had suspended its online lending service. As of December 2018, the platform still owed RMB 753 million in principal and interests to its clients.
Crackdown on Online Lenders Enters New Phase
Zhang’s arrest may mark a new stage in Beijing’s crackdown on illegal online lending platforms, which moved from concerns of financial risks into suspicions of organized crime and threats to public safety.
China’s online lending platforms flourished in 2015, with over 3,800 operations in China. The industry had outstanding loans of RMB 1.9 trillion ($217.96 billion) last year, far larger than the combined sector outside China, according to Reuters.
After Beijing moved to defuse debt bubbles and reduce risks in the economy, including the shadow lending sector, a wave of company collapses hit the P2P sector and triggered protests by angry investors who had lost their life savings.
Since last June, China has arrested 62 suspects abroad and seized RMB 10 billion in assets from 380 fraudulent P2P lending platforms, according to the country’s Ministry of Public Security.