A Death Sentence Puts Shadow Banking on Trial

The case of “Rich Sister” has the government on the defensive
The death sentence for Wu Ying has focused public attention on China's $1.3 trillion shadow banking system Hong Bing/Imagine China/AP Photo

When a Chinese court sentenced then-28-year-old Wu Ying, known as “Rich Sister,” to death for taking $55.7 million from investors without paying them back, it sparked a controversy over China’s shadow banking system that may lead to reforms. Wu’s crime involved a common illegal practice in China: raising money from the public with promises to pay back high interest rates. Operating outside the banking system or government regulation, the informal lending networks, known as the shadow banking system, are estimated to total $1.3 trillion, according to Ren Xianfang, an economist at IHS Global Insight in Beijing. They provide an important source of economic growth, capital for private companies, and return for investors seeking to beat inflation.

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