The Ponzi Scheme

This is a draft of a letter I'm sending to a Chinese TV reporter here in Changzhou.  His beat is the ex pat community.  He has set up a blog in English to help us be in touch with culture activities in the city.  He provides many interesting links on his site.  Atlanta's blog (汪健的博客)  I won't send it until after tomorrow.  Tomorrow I will make one last attempt to go to the offices of what I think of as a Ponzi scheme, and see if I am somehow mistaken and all will be put right.

Dear Mr. Wang Jiang,

I don’t expect you’d remember meeting me.  It was at Jagerwirt’s German Restaurant, they hadn’t been open long.  You were with Linda.  In fact, I didn’t recognize either of you until afterwards.  It took time before I realized you were the author of the Atlanta blog I’ve been reading, and that Linda was the elusive recluse I’ve been hearing about for years. Perhaps if my iTV service provided the local TV station I would have recognized your face.

In an email Linda told me you were looking into the difficulties encountered by foreigners trying to open small businesses here in Changzhou.  I am such a person, and I’d be interested to hear about others like me.  But that’s not why I’m writing.

I think that I have been swindled.  It is too small an amount to take to a lawyer and court, but for my fledgling business it would be enough to carry me through the first year.

Then again, maybe it’s all a bad misunderstanding.  I was thinking that someone in your position might have a better chance of finding out than me.

In the Fall of 2010 I brought over from the States my life savings.  I thought I could find an investment, or buy a home.  I have lived in China off and on since 2001.  I found Changzhou to my liking, with decent business opportunities.  I was too invested in China, its changes, its future, to leave.  It would be like walking out of a movie theater just as the hero begins to unravel the mystery, but before the audience is fully clued in.

At that time my circle of Chinese friends was extremely small.  It has since grown vast.  At that time I met a guy who lived in the same building as the apartments rented by the school for its foreign teachers.  “Jeff” WuGang’s English was well mastered, and he was an interesting guy.  I did some copy editing work for him now and again.  So when I was looking around for investments, I asked his advice.  He led me to the Bali Coffee Co.  He had contracted with them to put together a team for the interior design of a new factory they were building, and also a small retail shop in the Landmark area of downtown.

They sat me down at their offices, in the east side of University Town, and explained the proposition.  They were offering investments in blocks of 50,000 rmb.  In return, they were guaranteeing 18% annual interest and, at the end of the contract (either 3 or 5 years), a full return of the capital.

I said to Jeff, this is too good to be true.  What’s the catch?  No, no, he assured me, this is legit.  These guys are well connected.  Mr. Yang went to high school with the vice Mayor of Changzhou, he said.

I saw lots of certificates, signatures, stamps, photos on the walls to verify their authenticity.

The scheme is that they are making coffee vending machines.  Investors buy X number of machines, which the company then leases back from them.  Filling these machines is very profitable (I know that), and that is how they can share such high profits.

I asked them what their marketing strategy was.  Where were they planning to place the machines.  I pumped them for details.  I got nothing in return but platitudes.  Well, I thought, maybe that’s just the way Chinese do business.  Westerners tend to be more direct, to the bottom line.   Maybe I was experiencing this cultural difference right here.

Jeff was so persuasive.  I wanted to laugh at his naivete.  Instead, I said OK, let’s prove it.  Although I had at one point mentioned to Director Yang that I might invest 200,000, by the end of our talk sessions I knew I was already taking a big risk just giving up 50,000.

After the signatures were dry (the copy he gave me was stamped but not signed by him), he said that he would show his good faith by putting the first quarter’s interest into my bank account immediately.  The alarm bells went clanging and echoing in my head.  Ponzi scheme!

A couple of months later I was invited to the grand opening of their little ‘coffee culture’ shop in downtown, followed by a gala banquet.  The guests piled into two buses and were ushered from the shopping center to a hotel nearby.

There had to be at least 200 people in that hall.  Many speeches were made, you know how that sort of thing goes.  I had to leave before the end, because I had a class to teach.  There were boxes of goodies stacked near the entrance, which looked to me to be gifts that would be handed out.  Jeff swears none were, but I assume he kept my share.  He never did invest a nickel of his own money.

I visited the downtown shop a couple of times that winter, as I had a part-time job nearby.  They had asked my advice about how to decorate the stuff in ‘western coffee style’.  But I never did get a clear picture of what they were planning to sell there.

The shop was empty, except for the counter worker.  The shelves were lined with very expensive gift packages combining coffee pots, cups, and coffee.  There were also expensive wines, and tea sets.  I could go on Taobao and buy the same things much more cheaply.

I saw a number of examples of extravagance that belied good sound business practices, such as a day at the Dinosaur Park hot springs for a large number of guests.  Is this really the way Chinese business is conducted?  I had nothing to compare it to.

Now let’s get to the part about these quarterly payments of 2,250, totaling 9,000 rmb per year.  As I said , the first one came immediately.  So the next one wasn’t due for about 5 months.  I was busy at that time, having a full-time and two part-time jobs, and so I didn’t check my bank account.  When I finally did, in May, no additional funds had been deposited. 

I wrote to Jeff.  He spoke to his friends.  After some time, he emailed me to check my account.  I did; nothing.  It took a week before money showed up.  By then it was June, and the next payment was almost due. 

When next I checked, again no money had been deposited.  Again I contacted Jeff, and through his efforts another sum was deposited.  After that I put it out of my mind.  My fears either would or would not be confirmed.  I felt powerless.

Then I started working for Web full-time, and began to talk to smart business people.  I began to change my impression entirely of business is conducted in China.  I didn’t bring up the matter of this investment, however, until events thrust me onto this path of opening my own business. 

One of my new friends liked my business idea.  And while she was already deep into her career and so couldn’t get involved as my partner, she said she would back me up financially if and when my own funds ran out.  Eventually, I told her about the lost investment of 50,000 rmb.

Her husband is a policeman, and they thought I should fight for the money.

I waged what campaign I could, but I got the clear feeling that the coffee team was about to fold up tent and steal away in the night.  They kept promising me that on June 16 they would pay me my money.  That sounded to me like the day they would file bankruptcy, if such things transpire in China.

I am sending you the documents involved.  The original contract, and the history of the bank account they set up for me to receive their funds.  There is also an email sent me by a new man on the team, after I went to the offices to talk with Director Yang, who of course was not there.  That man, I believe his name is Liu Ming or perhaps Li Ming, was very nice, very sincere.  He gravely told me he would bring the matter to the attention of the Director, and resolve it.  This email was the promise of resolution.  But of course, the 16^th came and went, and there was no money nor were people answering the phones.

A friend looked into the business a few days ago, and found that the accountant was no longer working there.  Did she leave because she was uncomfortable with what was going on?  Or did she embezzle money?  Or did the Director fire her so he would have no witnesses?  I have no way to get answers to these questions.

I welcome your suggestions, if any come to mind.  If you find this story to be unusual and newsworthy, I can give you contact information.  Thank you for your time.