Monday, 9th August 2010

For Chinese Immigrants, Money Pools Offer a Risky Promise

Posted on 22. Oct, 2009 by Lulu Yilun Chen in Immigration, Money and Economy

by Lulu Chen

Shi Yuqing, a 65-year-old retired waitress from Flushing, said she had hardly slept in the past weeks over fears that she might not be able to retrieve the $196,000 that she and seven of her family members invested over four years in a Chinese bidding consortium known as “Biao Hui.”

This June, Shi learned that the person in charge of the bidding consortium which she was part of had fled to China with $980,000, according to the U.S. Wen Zhou Chamber of Commerce and Industry, based in Flushing. The man who fled, whose name has been omitted because he has not been charged with a crime and the reporter has been unable to track him down, took Shi’s life savings and those of some 20 other people, most of whom are Chinese immigrants earning moderate incomes in Flushing.

“I worked so hard to earn that money,” said Shi in Chinese. “I think about it every day and night.”

Shi is among the thousands of Chinese immigrants who participate in bidding groups known as Biao Huis, institutions designed to allow their members to access large amounts of money pooled together by others in the consortium through a bidding process. While this money-raising mechanism has helped Chinese immigrants to establish business over the years, it is not protected by the same laws that shield bank customers in the United States against fraud or theft.

In the current economic downturn, Biao Huis in Flushing have been struck hard: Some members have stopped making monthly payments and, in even worse scenarios, individuals in charge have embezzled the money. The eroding trust on the Biao Huis is hurting Flushing’s economy.

Chinese immigrants in Flushing who invest in Biao Huis mostly come from Wenzhou, a city on the east coast of China, known for being one of the largest shoe manufacturing capitals in the world today. In the 1980s, when China began to open up to the outside world and establish a market economy, immigrants from some villages in Wenzhou managed to enter the United States illegally.

Today people from those villages reside in Flushing and have reestablished the connections they had back home. For more than two decades, they have set up thriving businesses with start-up capital raised through Biao Huis. About 30,000 people from Wen Zhou are residing in Queens, according Lin Jiaji, the president of the U.S. Wen Zhou Chamber of Commerce and Industry.

Lin said that anyone can set up a Biao Hui and that there is no effective way to measure the number of Biao Huis that exist in Flushing today.

Participants in Biao Huis do not sign up contracts or documents and the consortium is built on trust and credibility, according to Lin.

Most of the people who have lost their money are hesitant to contact the police and district attorney’s office because of their limited knowledge of the legal system. They also do not know whether participating in Biao Huis is legal or not.

Jesse Sligh, the executive assistant district attorney in Queens confirmed that his office had not been informed about the case and that they needed the victims to come forward to establish a case.

Mr. Sligh added that, “Putting money into a consortium does not break the law.”

“Even if there is a lack of physical evidence, it does not mean these people do not have a case,” said Mr. Sligh. “We need to gather more facts to see if a crime has been committed.”

Jun Wu, a Beijing-based lawyer who specializes in international trading, said that “the most probably way for the victims to get back their money is to file for litigation in China as the suspect is in China right now.”

“Biao” is the Chinese character for bid and “Hui” means group. The origins of this unique finance system are unclear, but it is generally believed that Biao Huis were founded in ancient Chinese times among people who needed access to large amounts of money to start up businesses at a time before banks existed. Similar bidding consortiums exist in many East Asian and Southeast Asian countries, according to Ming Jer-Chen, a professor at the Darden School of Business at the University of Virginia.

Wen Zhou immigrants in the United States have benefited greatly from Biao Huis. Upon their first arrival they were able to start up small businesses with the money raised in Biao Huis. This helped legal immigrants overcome the problem of lack of credit in the U.S. banking system and undocumented immigrants dodge the issue of identity.

Shi started to invest in Biao Huis soon after she arrived in the United States in 1991, a prime time for Biao Huis in America as immigrants from Wenzhou flooded into New York.

Shi said that participants in Biao Huis receive higher interest rates and are able to raise more than $30,000 shortly after their first arrival in America.

“This is actually a great thing,” said Shi who made a down payment for a two-story house on Kissena Boulevard in 2002 with the money collected through a Biao Hui. “Everyone from Wen Zhou takes part in it.”

Anyone can start up a Biao Hui as long as that person can find enough people to join.

In September 2004, Shi joined a Biao Hui that had 70 equal shares and about 30 members — some members bought more than one share. In addition to the $1,000 initial payment, a monthly payment of $500 is required on each share. Every month, members are entitled to the total monthly contributions collected, after paying a fee. The winner is determined by a bidding process: The higher the fee offered, the better chance to win the monthly amount. Each member wins only once.

The monthly bidding rounds of Shi’s Biao Hui were supposed to start in September 2004 and end in June 2010. In theory, each member should win a bid. It was just a matter of time.

However by March of this year, Shi realized that there weren’t enough bidding rounds left for Shi and 15 of her friends to win a bid.

Shi and her friends sensed that something was wrong and tried to contact the person in charge. In an attempt to ease the tension, the organizer paid $500 on each share to the participants who had not won a bid yet. Two months later, Shi and her friends learned that the organizer had fled to China taking with him all the money in the fund. By then Shi had put in $56,000 in the consortium.

The person who embezzled the money is a Chinese citizen who used to work in pyramid selling for Market America, according to Shi.

After the discovery, Shi and her friends contacted the local Chinese commerce organizations and other non-profit organizations. Chen Yangming, the secretary of the Wen Zhou Residents’ Association, said that he had helped the group contact the Chinese embassy. The Chinese Consulate in New York did not respond to a reporter’s questions.

Shi’s experience with her Biao Hui was not unique.

Qu, who asked to be identified only by his surname, is a 35-year-old man who owns a supermarket. He said he had lost a total of $168,000 with his sister in a Biao Hui set up by a 45-year-old woman in 2007. Qu said he has been trying to track her for months to persuade her to return his money. If unsuccessful, he will consider taking legal actions against her.

Hu, who also asked to be referred only by his surname, lost about $50,000 in the same Biao Hui. The 40-year-old man, who runs a catering business, said that he would like to see the American legal system help to protect the interests of participants in Biao Huis and to preserve this financial system that once benefited so many people.

The woman in charge of Hu and Qu’s Biao Hui stopped the bidding process around February, much earlier than the scheduled bidding term of five years, according to Hu.

“This is hurting the economy in Flushing,” Hu said in Chinese. “Biao Huis helped us set up prospering businesses, but now no one dares invest in them anymore.”

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