Scam artists take advantage of downturn in China's economy

BEIJING -- Zhang Xue remembers how dazzled she was by the sales pitch — a glamorous, middle-aged woman who appeared in a sleek suit and jewelry and spoke of her successful struggle to become a millionaire.

"I only wanted to earn money and live by myself," says Zhang, 21, sobbing at the memory, "but I hurt my parents and friends."

The ensuing months saw her immersed in one of the many pyramid schemes and other financial frauds that have become common in China as the economy here sputters and more people seek to earn a quick buck.

The proliferation of such schemes — many of which have morphed into bizarre, cult-like underworlds — has bankrupted countless young Chinese of modest means as well as richer, relatively savvy investors. That has in turn sparked a massive, unprecedented crackdown by Chinese authorities who, because of the weak economy, are especially eager to avoid any additional financial disruptions or social unrest.

In Zhang's case, a $730 membership fee bought her entry into a health product company — and a whole new world, it seemed at first. Zhang moved 900 miles from northwest China to the coastal city of Qinhuangdao and a small dormitory that housed other young recruits. Older members washed her socks and cooked for her, she said.

Zhang admitted she lied to her father to get the membership fee, telling him the money was for a computer. She said she felt bad, because he earns just $440 a month, but she thought she was punching her ticket to a better future.

"The teachers were passionate, giving us daily lectures, such as 'No pain, no gain' and 'The way to overcome the economic crisis is to join this career,' " she recalled.

Pyramid schemes usually rely on members making an initial investment to join, then persuading others to follow suit. Members make money from new entrants, but in many cases, including Zhang's, actual products are never sold. As a result, pyramid schemes are prone to sudden collapse, leaving the most recent members out of hundreds of dollars or more.