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Thousands of families in a small city in east China's Zhejiang Province have been left penniless after allegedly losing more than 200 million yuan (US$25 million) in an illegal fundraising scam.

Fundraiser Du Yimin, the 42-year-old owner of two beauty saloons in the city of Lishui, was detained by police in July, after a furious creditor alerted the police to her scam.

But thousands of people who lent her money have been left wondering whether they will ever see the cash again, as months have passed with no sign that it will be recovered.

Many impoverished families offered their hard-earned wages to Du, while others borrowed money to loan to her.

Sun Changming, the local police official in charge of economic crime investigations, told yesterday that the specific number of people and exact amount of money involved in Du's case are still being investigated. He said the police expect to be able to reveal the figures by the end of October.

Last month officers called for more of Du's victims to come forward.

The amount of money involved is estimated at 214 million yuan (US$26.75 million), sources with the police were quoted by the Market News newspaper as saying.

"Du's case might be one of the largest-scale illegal fundraising cases ever reported in the province, and its investigation may go on for some time due to its complexity," said a member of the economic crime department under Zhejiang Provincial Public Security Bureau surnamed Yu.

Du began to raise money for several real-estate projects in 2003, promising people who loaned her cash interest of 10 percent per month, dozens of times the interest rate offered by banks.

Du, a divorced mother with a son, was believed to have had intimate relations with local officials, which earned her the trust of investors and ensured her priority in bidding for real estate projects, claimed Southern Weekend.

Several local government and bank officials are rumoured to be involved in the scandal.

This is the third case of large-scale illegal fundraising reported in the small city since the beginning of the year.

Local observers attribute the popularity of private fundraising in the city to its robust private capital and the tough lending policy imposed by banks on small enterprises.

The city boosts a large population of residents who recently returned from Taiwan with money for investment.

"They might chase projects which offer short term economic returns, such as real-estate developments and small-scale waterpower projects," said Zhu Ziyun, an official with a local bank.

Statistics from Lishui Statistics Bureau show that in the first half of 2006, enterprises in the city sought 6.7 billion yuan (US$840 million) of private capital, but only 1.7 million yuan (US$210 million) was loaned from banks.

Ranked as one of the least developed cities in Zhejiang, one of the cradles for the rapid growth of China's private sector, Lishui's per capital GDP stood at only 11,963 yuan (US$1,495) last year, less than half the province's average.

The State Council issued a regulation earlier this year in an attempt curb illegal private fundraising.

According to lawyer Qiu Baochang, dean of the Beijing-based Huijia Law Firm, China's laws on illegal fund raising are very sound, but local governments need to enhance their enforcement of relevant laws and surveillance of private capital.

(China Daily October 19, 2006)