Japan Life, Culprit for Pyramid Scams in China, Files for Bankruptcy
Xu Wei
DATE:  Dec 28 2017
/ SOURCE:  Yicai
Japan Life, Culprit for Pyramid Scams in China, Files for Bankruptcy Japan Life, Culprit for Pyramid Scams in China, Files for Bankruptcy

(Yicai Global) Dec. 28 -- Japan Life, a Japanese health product company notorious for pyramid selling of magnetizers and healing mattresses, has filed for bankruptcy on Dec. 26. The firm is actually the originator of the very first pyramid scam in China, Chinese Business View reported today.

The firm went to Shenzhen in the late 1980s shortly after the introduction of the opening up policy in the country. It successfully marketed magnetic healing mattress products across the southern Guangdong province, benefitting from the burgeoning Chinese economy. This was the time when pyramid schemes started to proliferate in the country, the report said.

The products were marketed through pyramid selling in China at prices three times higher than in the Japanese market. The scheme flourished and its multi-layered earning structure attracted buyers throughout the country. This is how the first pyramid scheme originated in the mainland.

Japan Life officially entered the Chinese market after setting up a joint venture, Ribao Laifu, in Shenzhen in 1993. The firm sourced raw materials from Japan and processed them in Shenzhen. Its magnetic mattresses were priced as high as CNY10,000 (USD1,529) to CNY20,000. It built up an extensive sales network by recruiting full-time Chinese college students. To join the scheme, a student must pay CNY1,500 for a mattress that was only worth CNY3,000. Some desperate students even borrowed from usurers to join the company.

Ribao Laifu opened several Chinese branches, and the number of sellers grew to 30,000 in just one year. Its monthly revenues scaled up to CNY1 billion amid proliferation of pyramid schemes in 1996 and 1997. Back then a high-level seller got more than CNY2 million in referrals every month.

The firm's success showed local businessmen the promising future of pyramid selling. As a result, the number of pyramid schemes mushroomed in Guangdong in the following months. The central government banned pyramid selling in April 1997 and Ribao Laifu, like all other such schemes, went into free fall in earnings. Its Japanese manager absconded with company funds. The sales network collapsed.

Japan Life profiteered under the guise of 'high-tech health products.' Thousands of people fell victim to the scheme, and most of them were elderly people. The firm accrued USD2.133 billion in liabilities.

Banks blocked the company's accounts, forcing it to file for bankruptcy, Japanese bankruptcy data firm Tokyo Shoko Research confirmed on Dec. 26.

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Keywords:   Pyramid Selling,Japan Life,Bankruptcy,Ribao Laifu