In recent years, pyramid schemes have made headlines around China, as a number of kidnappings and even deaths have been linked to the illicit business model. But while they’re explicitly prohibited by Chinese law — and those involved run the risk of being caught up in occasional police dragnets — the schemes have proven hard to stamp out.
This is in part due to the nature of the communities in which the schemers are based and operate. Between 2014 and 2017, I made several trips to a northern Chinese village that is slowly being demolished to make way for urban development — a place that I will refer to as “Y Village” to protect the identities of the villagers, who have also been given pseudonyms. I soon realized that relocated village residents, most of whom had simply been shifted to new apartments built atop their old land, were sharing their new neighborhood with a number of pyramid scheme operators. Many villagers rent out the apartments they received in exchange for the loss of their farmland and often have schemers as tenants. Though they are rarely involved in schemes themselves, such landlords maintain a strict code of silence about the illicit activity taking place in their midst — thereby helping shield the schemers from the attention of the authorities.
They do this despite knowing pyramid schemes are both illegal and societally harmful. One resident, Jing, harbors no illusions about the racket, but she has no interest in reporting those involved. “If I see something, I stay quiet; if there’s something happening in the building, I stay quiet,” she said. “Even the people across the hall are doing it, but I don’t say anything.”
The reasons for this are partly economic: The former residents of Y Village are more concerned with their own precarious financial situation than with legal niceties. After their village was bulldozed and they were relocated to their new apartments, villagers I interviewed reported that their monthly expenses jumped to roughly 2,000 yuan ($300), no paltry sum given that few families in the area earn more than 3,000 yuan in wages a month. When asked, villagers frequently complain about the high price of urban living. “Even opening your eyes means spending money,” one commented. “You can’t go out without two jiao [or about 3 cents] just for the toilet,” said another.
Prior to losing their farmland, village residents could grow their own food and provide for themselves that way. Today, however, their income is generally derived from one of three sources: government compensation for the loss of their land, salaries, or rental income earned from letting out their new government-issued apartments. The first is significant, but rarely life changing: In 2010, residents were offered 30,000 yuan per mu of land, a unit roughly equivalent to one-sixth of an acre, but this payout often arrives in piecemeal form, and the average resident only had about two mu of land to begin with. Many former villagers also lack a clear idea of what to do with this windfall, and some have wasted it on gambling. As for salaries, few villagers can find suitable work: The jobs they’re qualified for — typically positions as security guards or cleaners — they don’t want; the jobs they do want, they’re not qualified for. Even those who do earn wages rarely make much.
In short, former villagers are highly dependent on rental income to survive in their new urban environment. And pyramid schemers are a valuable pool of tenants: Not only do they pay rent themselves, they also drive up prices in the area, benefitting property owners. As one local resident put it: “Pyramid schemes raised the rent [to 10,000 yuan a month]. Before, when we lived there, it was only 5,000.”
Thus, residents have an economic incentive to shield those involved in the schemes, as they believe the arrest of the schemers would have a negative impact on the welfare of the community as a whole. Even setting finances aside, however, reporting such activity to the authorities goes against the very nature of close-knit village communities.
The high value that residents place on their social connections and networks also contributes to local unwillingness to report illegal behavior. Despite the upheaval of relocation, I found that village community governance structures and values largely survived the transition to the city. In part, this is because villagers were resettled together into so-called relocation neighborhoods, which helped preserve the village’s political and social organization. Many current neighbors once served together on the same village production teams, for example.
Thus, both residents and local officials, most of whom are drawn from the villagers’ ranks, remain deeply enmeshed in specific social and relationship networks that date back to their village days. When asked why more villagers didn’t report the pyramid schemes, one resident, Wang, gave a representative answer. “Oh, we’re all old neighbors,” she said. “If you report someone, then how will they make a living?”
But while ordinary residents can choose to do nothing in the face of illegal activity, grassroots-level cadres are faced with a dilemma: If they report, they’ll gain a reputation as whistleblowers and snitches, something that could negatively impact their work and standing in the community; but if they don’t report, then when the illegal activity is inevitably exposed, they’ll be punished by their superiors for dereliction of duty and for covering up criminal activity. So, to protect themselves, they adopt a “see no evil” approach to enforcement. Since they’re required to report any criminal activity they know about, they simply claim not to know anything.
Of course, in my experience, community cadres are eminently familiar with the location, members, and living situation of each household under their jurisdiction. Their claims of ignorance are just a transparent attempt to evade responsibility.
Still, this collective silence often has its intended effect. According to residents, because locals are unwilling to turn on their neighbors and tenants, authorities lack the evidence needed to prosecute those involved. The result is a catch-and-release policy in which pyramid scheme operators are arrested, lectured, and then let go.
The experience of Y Village illustrates some of the challenges China faces in implementing a top-down enforcement model at the local level. Such efforts, no matter how rational they may seem, are unlikely to be welcomed at the grassroots level of society, where personal interest and interpersonal relationships matter more than legal norms. Ultimately, if the government wants to effectively manage these communities, it would be better served working within local frameworks, taking the time to understand villagers’ concerns and interests, and co-opting capable, well-connected locals rather than attempting to mandate compliance from above.
Translator: Matt Turner; editors: Lu Hua and Kilian O’Donnell; portrait artist: Zhang Zeqin.
(Header image: The interior of a rental unit used to house pyramid scheme workers in rural Xi’an, Shaanxi province, April 18, 2008. Ruan Banhui/VCG)