Usury Crimes in Post-Crisis China: The Underlying Economics and Beyond

Abstract

Although China’s financial market grows more mature, an old, and arguably unethical form of finance—usury—still exists. In an age when the internet is widely available, various online lending platforms allow access to varieties of usury cloaked in new forms. In this article, we discuss three types of illegal usury crimes: campus loans that trick college students into heavy debts, naked loans that target young female students and use nude photos as collateral, and recipe loans that swindle people with valuable property (e.g., real estate). We found that these new forms of usury can be ascribed to a mismatch: the borrowers have a high marginal propensity to consume but limited liquidity to spend. Cultural, social, and legal factors in China are also significant contributors to the existence of these crimes.

Keywords:

• usury
• campus loans
• naked loans
• recipe loans
• affinity crime

JEL Classification Codes:

• B52
• E43
• K22
• K42

Notes

1 Three trillion renminbi equals approximately 430 billion US dollars (USD). The number has been adjusted for funds allocated to a series of reconstruction projects in Wenchuan after the catastrophic earthquake in 2008.

2 One example of the P2P platform scams is the Ezubao case, which amassed 91.6 billion renminbi; see Albrecht et al. (2017) for details.

3 We searched CNKI, China’s largest journal and newspaper database, using the keywords “campus loan,” “naked loan,” and “recipe loan.” We found that scholarly discussions in the field of criminology only surged after 2015. Also, by April 2020, there are still news reports about these usury crimes, despite regulatory efforts. Moreover, some of these loans have morphed into new forms, such as “training loans,” “education loans,” “cosmetic surgery loans,” among others. In other words, even though some institutions extended these loans were cracked down, similar ones keep on emerging. We thank an anonymous referee for pointing out this issue.

4 The survey was conducted by three affiliated organizations of Shanghai Jiaotong University: The Far East Academy, established by the SJU Institute of Arts and Humanities and the Far East Holding Group; the Public Relations Research Centre; and the Association of Social Survey and Research, a research group formed by SJU students.

5 The name “recipe” is alleged to come from Yinyi Wang, an attorney of Hai Shang Law Firm based in Shanghai.

6 The contents of the regulation can be accessed from the CBRC website. Available at http://www.cbrc.gov.cn/EngdocView.do?docID=D3EEA1B9889C4E6B826E6EC1D11826. Accessed January 17, 2019.

7 Xuetai Wang (1942–2018) is a scholar of Chinese history and culture.

Additional information

Notes on contributors

Dongmei Li

Dongmei Li is a lecturer in public administration at Kunming University (China). Zhe Peng is a PhD student in finance at the Lazaridis School of Business and Economics, Wilfrid Laurier University (Canada). Kainan Xiong is a PhD student in accounting at the Lazaridis School of Business and Economics, Wilfrid Laurier University (Canada). The authors would like to thank Phelim Boyle for part of the idea of this article and Yahui Yang for excellent research assistance. Comments from Yong Qiang Chen and the workshop participants at Wilfrid Laurier University are also gratefully acknowledged. All remaining errors are the authors' own.

Zhe Peng

Dongmei Li is a lecturer in public administration at Kunming University (China). Zhe Peng is a PhD student in finance at the Lazaridis School of Business and Economics, Wilfrid Laurier University (Canada). Kainan Xiong is a PhD student in accounting at the Lazaridis School of Business and Economics, Wilfrid Laurier University (Canada). The authors would like to thank Phelim Boyle for part of the idea of this article and Yahui Yang for excellent research assistance. Comments from Yong Qiang Chen and the workshop participants at Wilfrid Laurier University are also gratefully acknowledged. All remaining errors are the authors' own.

Kainan Xiong

Dongmei Li is a lecturer in public administration at Kunming University (China). Zhe Peng is a PhD student in finance at the Lazaridis School of Business and Economics, Wilfrid Laurier University (Canada). Kainan Xiong is a PhD student in accounting at the Lazaridis School of Business and Economics, Wilfrid Laurier University (Canada). The authors would like to thank Phelim Boyle for part of the idea of this article and Yahui Yang for excellent research assistance. Comments from Yong Qiang Chen and the workshop participants at Wilfrid Laurier University are also gratefully acknowledged. All remaining errors are the authors' own.