Career
In the aftermath of the scandal, information regarding Shen is limited. His case was one of the most high-profile business scandals in recent history for the People’s Republic of China. Called ‘the Great Wall bubble’, the crisis raised serious questions about the Chinese legal system and investor protection in China’s new market economy. Even though the case involved more than 100 government officials, Shen emerged as the major player in the scandal and paid with his life.
Shen encouraged over 100 000 Chinese to purchase ‘junk bonds’ in order to support an electrical machine research project that was supposed to focus on power generation and energy. Shen needed start-up funds in order to finance the project and promised a 24 percent interest rate for investors. He bribed many officials, among them officials in the State Department of Science and Technology, so that they would confirm his company’s claims. While he took investors’ money, he failed to conduct research. Instead Shen used funds from investor A to pay interest to investor B, and so on in a classic pyramid scheme. At the same time, he opened branch offices and acquired hard assets, sinking deeply into debt. Shen, along with the government officials he bribed, pocketed the majority of investor funds. At the height of his ‘success’ Shen spent lavishly on luxury goods and entertaining.
Shen was able to convince so many investors in part because he bribed several journalists to write positive articles about his company. With press and public officials, such as Li Xiaoshi, a deputy minister at the State Science and Technology Commission, supporting his claims, Shen was given greater and greater access to resource and capital and drew widespread investor support.
The Chinese government finally got suspicious of Shen’s machinations when they discovered that he sold his shares through dance hall girls and other illegal means. They froze all his bank accounts and he was caught in March 1993 at the airport, just as he tried to flee the country. He was executed by firing squad on 11 April 1994. Only one accomplice, Li Xiaoshi, was arrested. No other government officials were implicated. While corruption and bribery were not unknown in business circles, Shen’s lack of party connections combined with his immoral business methods prompted Chinese officials to act decisively.
Despite his fate, it should be noted that Shen was regarded as a smart and innovative businessman who researched and developed many legitimate products, such as a packaging and card reader machines. In the aftermath of Shen’s death little effort has been made to review the methods that allowed his actions to go unchecked.
