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Pyramid schemes target students
(China Daily)
Updated: 2004-07-30 09:08

Zhao Yan, a university student in Shanghai, has been running a shopping centre on the Internet for nearly two years. She is satisfied with her cyber venture because she makes enough money from it to cover her daily expenses.


Participants at a lecture on pyramid sales are ordered to leave their seats in an April raid by the local administration for industry and commerce at Gongzhuling in Jilin Province. [newsphoto/file]

"I am only in it for the profit," she said. But she was quick to add that hers is legal direct marketing, not an illegal pyramid sales scheme.

Like Zhao, many college students dabble in business today, but to the surprise of the public, some of them have fallen into the trap of pyramid sales.

In a pyramid sales scheme, called chuan xiao in Chinese, participants who are in it at a certain level are promised bonuses ONLY IF the pyramid grows to another level. Of course, any pyramid will eventually reach the point where it is impossible to add new participants, causing a crash of the entire sales chain. All involved lose their investment, except the crook - the pyramid scheme initiator - and his cohorts.

In late March 2004, over 2,000 college students, the largest number of students ever involved, were rescued from a pyramid sales scheme in Chongqing, in Southwest China. About two months later, around 40 university students were found attending a gathering of chain sellers in North China's Shanxi Province. In June police rescued more than 30 students from a pyramid sales plan in Changzhou, in East China's Jiangsu Province.

The actions caught the attention of top State officials. On June 1, Premier Wen Jiabao ordered a crackdown on illegal pyramid selling which targets university students.

Crime experts say there are a variety of reasons to explain why so many university students have been lured into pyramid sales schemes.

Most students involved are from poor families and want to escape poverty and become financially successful, said Feng Lei, an economist with the Chinese Academy of Social Sciences who studies and keeps track of pyramid sales activities. "Some students from poor families have a natural incentive to take part in a pyramid sales schemes," he said.

Fraudulent promoters are an outside force. Their "inspiring speeches" describing pyramid sales schemes as a way to easy, quick money often captivate gullible students, Feng said. "Blinded by promises of lots of easy money, some students are easily lured onto the chain-marketing bandwagon," he said.

In the Chongqing case, the victims, crammed in a small room, were bombarded with daily inspiring speeches and sang songs to fortify their resolve to "succeed." They lived so poorly that rotten vegetable leaves were a regular part of their diet. But with the promise of easy money, they accepted hardship calmly, with rare fortitude.

"The crooks convince them that this kind of life is intended to cultivate a good personality - endurance. And they believed in 'no endurance, no success'," Feng said.

The purpose of attracting college students into pyramid sales schemes is to use their respectability to attract more recruits, said Zhang Ronggen, deputy head of the Journalism Department of Shanghai International Studies University. "In the eyes of ordinary people, college students are seen as being reliable and trustworthy, so people are more inclined to buy the products the students sell."

Pyramid selling, or selling things through a multi-level hierarchy of salespeople, was introduced into China by overseas business people and foreign-funded businesses during the late 1980s and early 1990s. After a trial period, it was discovered that this marketing method was unsuitable for China's national conditions at the present time, and was causing serious problems.

Although they are incomplete, available statistics nonetheless clearly show that since 1999, millions of Chinese have participated in various forms of pyramid sales schemes, with a cumulative business turnover approaching 10 billion yuan (US$1.2 billion). Economists believe covert pyramid selling activities have defrauded millions of people of their hard-earned money and disrupted social order.

In 1998, the State Council issued a regulation banning pyramid sales. But illegal activities are hard to root out and there has been a revival of the practice recently, despite crackdowns by police and the State Administration for Industry and Commerce.

In Northeast China's Liaoning Province, in the first six months of this year, law enforcement agencies investigated and dealt with 256 pyramid sales cases and destroyed 4,966 sales sites, according to the State Administration for Industry and Commerce.

The company responsible for the Chongqing case, called Oliman, claimed to be representing a French cosmetic brand. It sold the students starter kits for 3,350 yuan (US$403) each, telling them that they could make up to six times that much in three to five months by signing up customers. Police later found that neither the company nor its cosmetic products had been legally registered. Three farmers, who are now arrested, were the top operators. The case involved at least 3 million yuan (US$361,000).

"I am surprised that the students involved did not realize that the scheme was obviously a fraud," Feng said.

Han Bing, a freshman at Beijing Science and Technology University, said college students, buried in their studies, sometimes fail to keep in touch with current social issues. Nor do college administrations take the trouble to inform students of such issues, he said. "As for myself, I would find out whether a business venture is legal or not before becoming involved in it," he said.

Feng said, "Enhancing people's ability to judge is what we should do in the future. Students should be taught the true nature of pyramid sales so that they can avoid getting tangled up in such schemes through ignorance."

The Ministry of Education has informed institutions of higher learning and provincial education departments across the nation of the cases of university students' involvement in pyramid sales.

The ministry will also release pamphlets and TV programmes that expose pyramid sales to enhance students' ability to resist the lure of chain sales schemes.

Zhang Ronggen, from Shanghai International Studies University, said schools should take more responsibility in fighting against pyramid sales.

"Lectures should be given to students to provide them with information about the illegal aspects of pyramid selling as well as about the realities of such schemes," he said. "In addition, more legal job opportunities should be provided to students from disadvantaged families."

His university has launched a part-time work programme for such students. Some students, for example, get jobs as private tutors or part-time teachers in high schools. The con artists will find it much harder to defraud students who have a part-time job and a legal way of earning some money, he said.



 
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