A former district official in Jiangsu province has been placed under police custody after being suspected of illegally collecting at least 250 million yuan ($36.5 million) from the public, local police said yesterday.

Pan Jianping, a former member of the National People's Congress standing committee of Beitan district in the city of Wuxi, was alleged to have pooled the money from company executives, government officials and financial institutions with promises of high returns.

Police did not say how Pan solicited the money or where the money went, but local newspaper Modern Express reported yesterday that the woman, aside from her government work, also owns four companies and has business deals with many iron and steel companies, which may have helped her gain the trust of lenders.

The report cited one example in which Pan borrowed 10 million yuan from a steel mill boss in Changzhou, Jiangsu province, citing liquidity problems, with a promised interest rate of 15 percent in a span of several months. But she failed to return the money.

"In China, only financial institutions or other authorized organizations are allowed to borrow money from the public," said Qiu Baochang, a Beijing-based lawyer.

"In Pan's case, the collection of public deposits is unauthorized, and she obviously has ulterior reasons behind that."

If convicted, Pan could be sentenced to a maximum of 10 years in prison, he said.

But the punishment could be harsher should she be convicted of additional crimes like fraud, he added.

The incident follows a recent court verdict in Foshan, Guangdong province, that sentenced a criminal to death over charges of graft and illegal fundraising. He Liqiong, director of a district level post bureau, was believed to have solicited 1.3 billion yuan from different sources within three years.

Meanwhile in Zhejiang province, Xinhua reported that nearly 200 cases of illegal fundraising were uncovered in 2008, an unusually high number that is due to the increased difficulty for companies in securing financing in the wake of the economic recession.

"It (the increase of the crime) shows that many companies in China are still experiencing problems with financing and that private lenders with excessive liquidity do not have access to other investment alternatives," Qiu said.

"Although the government is now losing its grip on underground private lending to support small- and medium -sized companies suffering from tight liquidity, there are still many restrictions that may have driven those companies to solicit public money for quicker returns," he said.

"Private lenders, on the other hand, are very likely to take the risk given the volatility associated with the Chinese stock and property markets," he said.

To put a stop to such crimes, Qiu suggested the government should develop more flexible policies to help small- and medium-sized companies find money for growth, while cracking down on those responsible for illegal loans.

(China Daily?July 15, 2009)