Warm tea and brainwashing: Why Singaporeans fall for China’s 1040 scam

(Edited and refined by Candice Chan, with the assistance of AI translation.)

Chinese authorities have launched a crackdown on suspected pyramid schemes in Guangxi, arresting and detaining 52 Singaporeans. According to public reports, Chinese authorities have repeatedly warned of pyramid schemes commonly known as the “1040 Sunshine Project”, which have operated for years in places such as Nanning and Beihai in Guangxi.

Promising that an investment of 69,800 RMB (US$10,400) could reap returns of 10.4 million RMB, and claiming to be backed by the central government and a “secret national policy”, the 1040 Sunshine Project is one of China’s most widespread pyramid schemes. Despite its notoriety and years of existence, it has proved stubbornly difficult to stamp out.

Liu Libing, a “pyramid scheme rescuer” who works on the front line helping victims leave such organisations, told Lianhe Zaobao (LHZB) that numerous new versions of the 1040 Sunshine Project have emerged over the past two years. These are more sophisticated and covert than earlier incarnations, making them better able to evade police crackdowns. Their rules of the game have also become simpler, making it easier to lure people in.

In a typical 1040 scam, ringleaders falsely claim that the scheme is covertly backed by the state, luring people into paying sums such as 69,800 RMB and recruiting new members. Participants are told that as long as they bring others into the scheme, they will receive commissions at successive levels and eventually make 10.4 million RMB. This is how the 1040 Sunshine Project got its name.

When police in Chengdu, Sichuan, revealed a major 1040 pyramid scheme involving 23 million RMB late last year, they said that such organisations often cloak themselves in impressive-sounding labels such as “national projects”, “capital operations” and “chain operations”. Some even latch on to fashionable economic concepts such as “virtual currencies”, “e-commerce” and “consumer rebates”. But the underlying model remains the same: recruiting new members, collecting “entry fees” and paying commissions based on team performance.

Liu said 1040 schemes operate under a bewildering array of names across China. Some have even set up pyramid schemes in the name of the Chinese dream. “To put it simply, they claim they are just following national policy.”

‘Southern-style’ pyramid selling

Those who become deeply entangled in 1040 schemes typically lure relatives, friends or strangers to other cities on the pretext of looking at investment projects, discussing business opportunities, travelling or making friends. Once there, newcomers are brainwashed inside ordinary-looking residential compounds.

This approach is known in China as “southern-style” pyramid selling. Victims are rarely deprived of their physical freedom or access to their mobile phones; instead, the emphasis is on psychological control. By contrast, “northern-style” schemes often involve physically confining their victims.

Chinese media outlet The Beijing News once observed that under the family-style approach used by southern-style schemes, newcomers who unwittingly find themselves drawn deep into a 1040 operation “often receive ‘family-type service’, with people pouring tea for them, making their beds and even warming their blankets. “Surrounded by this family-like warmth, you become touched and even grateful. Then, whatever the pyramid sellers tell you, you are more inclined to believe. Add human greed to the mix, and before you know it, you have fallen into the trap.”

The 1040 Sunshine Project is one of the pyramid schemes most frequently exposed by the Chinese media. A 2017 report by Zhejiang’s Qianjiang Evening News said 1040 schemes could be found across China. As early as 2007, related activities had already surfaced in Nanning in Guangxi, Wuhan in Hubei, Hefei in Anhui and Guiyang in Guizhou, among other places. Some operators had even set up official websites.

Crackdowns ongoing since 2014

Since 2014, authorities across China have mounted successive crackdowns on 1040 operations. As of 4 September, China Judgements Online, set up by China’s Supreme People’s Court, had published more than 1,000 court documents from around the country involving the 1040 Sunshine Project.

Despite being widely reviled in China, and despite repeated efforts by the authorities to step up enforcement, schemes such as the 1040 Sunshine Project have proved remarkably resilient. Local police in China have even publicly described them as the “cockroaches that simply won’t die”, “because there are simply too many people in society who want something for nothing”.

Liu said: “We’ve noticed a very strange phenomenon over the past two years. Compared with a couple of years ago, people who get drawn into pyramid schemes now seem much easier to brainwash. One possible social factor is that it’s becoming harder for people to make money. They go out looking for work and keep running into setbacks, then suddenly come across something that promises they can make 10 million RMB. They might think, ‘Even if I only make one million RMB, that’s still pretty good.’ There’s a mentality of wanting to take a shortcut to riches.”

Secretive networks difficult to trace

Chinese independent media outlet Truman Story (“真实故事计划”), which specialises in investigative reporting, cited lawyer Tian Kuiyang, who has been involved in several 1040 cases, as saying that under Chinese law, organising or leading pyramid selling activities becomes a criminal offence only when the total number of participants reaches at least 30 and the organisation has at least three levels in its hierarchy.

But 1040 networks operate in extreme secrecy, typically housing just six people in each residence. Even when the authorities dismantle one operation, it can be difficult to trace the network back to those at the top. As a result, police often have little recourse beyond administrative penalties such as verbal warnings and fines.

In May this year, Chinese authorities released draft revisions to the Regulations on the Prohibition of Pyramid Selling for public consultation. It is the first major overhaul of the regulations in 21 years, since they came into force in 2005, and is aimed at strengthening the mechanisms and measures used to prevent and combat pyramid selling.

This article was first published in Lianhe Zaobao as “臭名昭著横行多年 中国“1040阳光工程”传销为何屡禁不止？”.

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