Caixin Weekly | Collapse of Hengyang Retirement Apartment Uncovers Civil Affairs Officials—Why Did the Scam Go Undetected for Over a Decade? (AI Translation)

财新周刊｜衡阳养老公寓爆雷牵出民政官员 骗局为何十余年未被查处

The article details the rise and fall of Xiyanghong Elderly Care Home in Hengyang, Hunan, a flagship private elder care institution that became embroiled in a major financial fraud case, exemplifying regulatory failures in China’s rapidly evolving eldercare sector. At its peak, the home housed 400-500 residents, but after a financial crisis, only a few elderly incapable of self-care remain, and the institution survives on government subsidies [para. 1]. The root of the problem was a massive fundraising fraud orchestrated by businessman Li Xinhui and his wife, Quan Jun, who built a complex scheme over 15 years, culminating in a collapse in November 2019 when elderly investors were unable to recover their savings [para. 2][para. 3]. Li and Quan were later sentenced to life imprisonment for fundraising fraud and illegal public deposit absorption, involving over 2.8 billion yuan (approx. $390 million), and four local officials faced criminal charges for their role in the scandal [para. 4][para. 5].

Xiyanghong Apartments, established in 2004 as one of Hunan’s early private sector eldercare pilots, grew rapidly in size and reputation [para. 6]. From its inception, it used a model that encouraged elderly residents to make large advance “guarantee fee” deposits in exchange for future accommodation, financial bonuses, and subsidies, promising annual returns as high as 14% depending on investment size and duration [para. 7][para. 8][para. 9]. The funds collected were often used to pay off previous investors and cover operating expenses, resembling a Ponzi scheme. By mid-2015, as new land development projects failed, Li intensified the fundraising drive to cover shortfalls and attempted, unsuccessfully, to publicly list his companies overseas [para. 10][para. 11]. In 2017-2018, some elderly investors—lured by high returns and seeing others benefit—made substantial deposits, only for payouts to stop in June 2019 as the scheme ran dry [para. 12][para. 13].

Authorities had long been aware of suspicious financial practices at Xiyanghong. Since 2007, the Hengyang Civil Affairs Bureau issued warnings and orders to halt fundraising, yet the operation not only continued but expanded [para. 14][para. 15]. Civil affairs officials, at times with personal family ties to the company and accepting bribes, repeatedly failed to act decisively, instead signing off on annual reports and enabling the continued acquisition of government subsidies [para. 16][para. 17][para. 18]. Investigations eventually revealed that from 2005-2019, most of the 2.8 billion yuan raised went to repaying prior investors and company expenses, with only 137 million yuan invested externally and 165 million unaccounted for [para. 19].

After the collapse, local officials including Lu Yaqin, Li Xiangrong, Wang Runsheng, and Deng Guilan, were arrested and convicted for abuse of power, dereliction of duty, and bribery, with sentences ranging from three to seven years [para. 20][para. 21][para. 22]. However, the case was sent for retrial in 2024 due to questions over the clarity of evidence and the precise responsibilities of civil affairs authorities in financial regulation [para. 23][para. 24]. Defense arguments centered on the ambiguous regulatory framework and shifting guidelines, while the courts maintained that failure to prevent clear illegal fundraising constituted criminal negligence [para. 25][para. 26].

The article situates the scandal within broader national trends: as China’s elderly population grows, the eldercare sector has seen explosive, under-regulated expansion, with illegal fundraising cases in the sector exceeding 8 billion yuan nationwide and many vulnerable seniors left destitute [para. 27][para. 28][para. 29]. Recent policy and regulatory reforms now aim to strengthen oversight, with emphasis on risk prevention, supervision of prepaid funds, third-party custodianship, and stricter penalties for violators [para. 30][para. 31][para. 32]. The case underscores urgent needs for regulatory clarity, inter-departmental coordination, and greater transparency to prevent similar tragedies in the future [para. 33].