Yes. Raising money from the public in China without official approval is a crime. The umbrella term is illegal fundraising (feifa jizi), and depending on your intent prosecutors will charge either illegal absorption of public deposits under Article 176 of the Criminal Law, or, if you intended to defraud investors, fundraising fraud under Article 192, which carries far heavier penalties.
What counts as illegal fundraising
The offence is defined by the Regulation on the Prevention and Handling of Illegal Fundraising (State Council Order No. 737, effective 1 May 2021). Article 2 defines it as raising funds from unspecified members of the public by promising repayment with interest or other investment returns, without a licence from the financial authorities or in violation of financial regulations.
The Supreme People’s Court’s 2022 interpretation (Fa Shi [2022] No. 5) sets out the four conditions that together make a scheme illegal absorption of public deposits under Article 176: the funds are raised without approval, or under the guise of lawful business; the scheme is publicly advertised; it promises returns; and it targets the public at large. Raising money privately from relatives or colleagues is not caught.
The penalties
Article 176 punishes illegal absorption of public deposits with up to three years’ imprisonment for the basic offence, three to ten years where the amount is huge or there are other serious circumstances, and ten years or more for especially huge amounts. Courts may also impose fines, and the same article allows a lighter or reduced penalty if the offender returns the funds and reduces losses before prosecution.
Under the 2022 interpretation, prosecution under Article 176 generally starts at RMB 1 million raised, 150 investors, or RMB 500,000 in direct losses. Fundraising fraud under Article 192 is treated as an amount that is relatively large from RMB 100,000 and huge from RMB 1 million, and carries three to seven years, rising to seven years to life.
Practical risk
Foreign investors and executives are not immune: the offence turns on the structure of the scheme and the promise of returns, not on nationality. Selling investment products, running an unlicensed lending or wealth-management platform, or promising guaranteed buy-backs can all fall within it.
A realistic scenario
A hypothetical: a company markets wealth products to the public promising 12% annual returns without any licence. If it genuinely tries to invest the money, that points to Article 176; if the executives instead siphon the funds off, the same conduct can be recharged as Article 192 fundraising fraud, a much longer sentence.
The bottom line: in China, who you raise money from, and whether you are licensed to do it, decides whether you are running a business or a crime.
FAQ
Q: What are the four elements of illegal fundraising in China?
A: Under the 2022 interpretation: no approval (or a lawful-business disguise), public advertising, a promise of returns, and money taken from the public at large.
Q: How much money triggers prosecution?
A: For illegal absorption of public deposits, generally RMB 1 million raised, 150 investors, or RMB 500,000 in direct losses.
Q: What is the difference between Article 176 and Article 192?
A: Article 176 is illegal absorption of public deposits; Article 192 is fundraising fraud, which requires intent to defraud and is punished far more severely.
Q: Does returning the money help?
A: Yes. Article 176 allows a lighter or reduced penalty if the offender actively returns the funds and reduces losses before prosecution.
Wang Guan | Co-founder, Beijing Haolue Law Firm | +86 17813108512