A major financial scandal has emerged in China as “Haiyin Wealth” (referred to as “Haiyin”) collapsed overnight, causing the evaporation of 71.6 billion yuan, leaving more than 46,000 investors empty-handed. The latest reports indicate that many of Haiyin’s investment products were fabricated and nonexistent, with dozens of companies used to raise funds being mere shells. This has led experts and the public to question the oversight mechanisms in place and why wealth management companies in China are frequently facing such catastrophic failures.
Haiyin Wealth, ranked among the top three wealth management platforms in China alongside “Zhongzhi Group” and “Noah Wealth,” unexpectedly collapsed last December. The shadows of the collapses of Zhongzhi and Noah have not yet dissipated, and now Haiyin Wealth’s collapse has left more than 700 billion yuan unpaid for over five months.
According to a recent report by the Securities Times, an investigation revealed that all 465 wealth management products sold by Haiyin Wealth were “in violation,” with the underlying assets being entirely fabricated. The scheme involved setting up 22 empty shell companies, channeling investors’ funds into these accounts, creating a fund pool, registering with a faux exchange, and ultimately leading to the disappearance of 71.69 billion yuan.
The investigation uncovered three main scenarios: assets being entirely fabricated, contracts with underlying companies settled and assets non-existent, and massive overfunding where investors have limited rights to claim against the underlying companies. This has laid bare the operational model of Haiyin Wealth, which relied on over 180 offline wealth centers in more than 90 cities to attract over 40,000 high net worth individuals.
The collapse of Haiyin Wealth has left more than 46,000 investors with over 70 billion yuan in losses, sending shockwaves through the investment community. Scholars and the public have been voicing their concerns and opinions on the matter.
Han Xiuyun, identified as an associate professor of Economics at Tsinghua University, released a video on the evening of June 3, stating that 71.6 billion yuan evaporated in the Haiyin scandal, impacting 46,600 investors who lost an average of 1.54 million yuan each, with their funds disappearing overnight.
She highlighted several issues exposed by the scandal, including questions about regulatory oversight of products like those offered by Haiyin. By bypassing proper channels and listing on a fake exchange, over 400 wealth management products were found to be in violation. With 15 fake exchanges involved in the Haiyin collapse, concerns arise about the credibility of financial products in China and whether the public can trust them.
Han Xiuyun pointed out a pattern of independent wealth management companies facing repeated collapses, posing significant risks not only to investors but also to the financial system at large. She emphasized that the schemes used in these collapses prey on investors from various social classes, attracting investments ranging from tens of thousands to millions of yuan.
Many investors have questioned how such fraudulent enterprises like Haiyin could thrive across China and achieve a top-three status in the industry. Additionally, they raised concerns about the timing of identifying violations only after the collapse, questioning the legitimacy of these products prior to the fallout. Questions linger about who approved these products and what their intentions were.
Furthermore, critics have pointed out the trend of real estate, wealth management, and stock market collapses leaving investors with nothing, raising doubts about the effectiveness and integrity of regulatory bodies in overseeing these financial industries. The aftermath of these collapses has left a trail of devastation, leaving many wondering how regulatory agencies can continue to operate in such a manner.