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China warns of `social instability' from rise of scam artists

BEIJING—A rising number of scam artists in China are using devious tactics to lure people into fraudulent enrichment schemes, and the trend poses a "serious threat to social stability," authorities warned Friday.

The warning in the state media coincided with a report that organized criminal rings operating in cahoots with corrupt officials are also widespread.

The Ministry of Public Security said economic crimes jumped nearly 10 percent earlier this year, with unwary citizens hoodwinked by everything from fake stock scams to pyramid schemes and bogus investment swindles.

"Most of the victims are the elderly who want higher returns for their savings," said Gao Feng, the deputy director of the ministry's economic crimes investigation bureau, according to the official Xinhua news service.

If it goes unchecked, the rise in economic crimes could slow China's economic growth, unnerve foreign investors and curb domestic investment.

Gao warned the citizenry to be cautious of offers to get rich quickly, noting that his bureau had recorded 62,000 economic crimes between January and October of this year.

The state is paying particular attention to pyramid schemes, in which large numbers of new recruits pay money to join a business without a sustainable product or service changing hands.

A report on the Ministry of Public Security's Web site Friday said security agents investigated 1,499 cases of pyramid selling involving about $640 million in goods in the first nine months of this year. Police arrested an average of 32 suspects a day and broke up groups with a total of 170,000 members, the report said.

A scheme to sell fake medicines over the Internet roped in 100,000 people in Shandong and Henan provinces, the English-language China Daily said.

Gao said police in Shandong cracked a cosmetics sales scam this year that took more than $250 million from about 500,000 people in 16 provinces, Xinhua reported.

"Many of the cheated people are among the most vulnerable of our society—farmers, retirees and the unemployed. These cheated people see their life savings vanish overnight," China Daily said in an editorial.

Pyramid selling began in the 1980s amid China's move to a market system, but it was banned in 1998.

Other types of fraud are also becoming more common. A company in northeast China raised $725 million from investors seeking to make a killing from ant farming, state media said. But the Donghua Ecological Breeding Co. left investors nothing but a prickly feeling.

Charlatans increasingly use text messages sent to China's 437 million mobile phone users as a hook for fraud.

This week, a new alliance formed by the Ministry of Information Industry, the two largest mobile phone companies and several other firms said China's mobile phone users receive an average of 8.29 unsolicited text messages a week, almost evenly divided between pornography and fraudulent business solicitations.

A scholar who studies criminality said typical fraud involves a text message that tells the receiver to call a certain number to verify a purchase in a faraway city.

"They insist that you have to pay money. If you try to defend yourself, they ask for your account information," said Pi Yijun, a professor at the China University of Political Science and Law. "Many people are unaware that after disclosing their account information, their money can disappear."

The Beijing News reported Friday that a local woman lost her life savings of $42,600 through such a scheme last month.

Separately, authorities said Friday that they'd broken up 1,347 criminal gangs through the end of October, many of them linked to local officials who provide protection. The gangs often run karaoke bars, dance clubs and prostitution rings.

"Many people say that the reason prostitution is so prevalent in China is because the (local) officials don't want it to disappear," Pi said. "They get money from these venues."

Pi said he believes the central leadership of China's Communist Party wants to crack down on such corruption but is often thwarted at the local level.

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(c) 2006, McClatchy-Tribune Information Services.

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