The Chinese “gang” manipulating the market — now in EOS?
A week in the life of the Chinese “Wenzhou Gang”: Going from high profile to hidden
With the EOS mainnet launch on June 2, I thought I would share another translation of an article that highlights an interesting aspect of the Chinese crypto scene. When I published my last translation piece on the significance of blockchain as compared to AI, there was a passing comment about how the “Wenzhou Gang”, stemming from their varied history of the place as the cradle of shady business in China.
However, with this piece, I’m actually trying to illuminate more on the real definition of the Wenzhou Gang. When someone mentions them, they are actually referring to a group of market manipulators, not necessarily in Wenzhou but rather also in Fujian and Shanghai. They are known for buying into stocks with specific attributes, such as: 1. Small market cap, preferably less than 3 billion in liquidity; 2. Few institutional investors, or not at all; 3. Unpopular stocks, especially ones not subject to market attention for a long time; 4. Poor recent performance; — and driving the price sky-high, before subsequently dumping the stocks and moving on to their next target.
So imagine my delight when I found this article detailing the activities of this so-called “Wenzhou Gang” in the perspective of the EOS fever that has swept China.
As you read through this historical account of the Wenzhou Gang, and the way it has influenced their view of the world and their approach to being an EOS block producer, you might end up being fascinated by the influence they have had on the economy. I’ll be honest, I ended up spending a lot more time reading the history of this than I should, what with everything else I’m supposed to be doing instead 😂
*Note: When I finished translating this, the EOS block producers had not been voted in yet.
Here we go, enjoy the intrigue.
These days, beyond the people of Wenzhou, everyone holding EOS has become hypersensitive to the words: “Wenzhou Gang”.
On April 20, 2018, the Wenzhou Gang gathered up 4 billion Chinese yuan and rode guns blazing into the scene to contest as one of the 21 block producers for EOS. When this was revealed, EOS prices climbed for days — although there was an equally rising sentiment of panic.
Due to the sheer volume of people buying into EOS, the price soared. This, however, brought flashbacks of the Wenzhou Gang in the stock markets, who aggressively bought into a stock, waited for the price to rise, before ruthlessly dumping it. Will the Wenzhou Gang cause this dramatic tragedy to happen again here?
People started to quiver and quail. “If the Wenzhou Gang doesn’t follow through, wouldn’t the next price shock be terrifying?”
On April 25, 2018, EOS fell by about 5% after rising for several consecutive days. One token holder immediately thought of the connection with the Wenzhou Gang — he mustered up his courage, sold every single token he was holding, and exited EOS for good.
People are simultaneously ecstatic about the price increase, and petrified by the Wenzhou Gang’s heavy-handedness.
But what is the real face of the Wenzhou Gang? And what do they herald for EOS Wenzhou?
From high profile to hushed
OnApril 23, news that the Wenzhou Gang had joined the race to be an EOS block producer broke and became the hot topic in the blockchain space. Three days later, on the rain-slicked roads of Wenzhou, there was a massive traffic jam.
As the relentless rain pounded on windshields, streaking in multiple lines before being swiped away by wipers, the hearts of men were anxious and impatient.
Tucked safely in the warm interior of a spacious tea room, someone piped up with the term “Wenzhou Gang” — suddenly, the restlessness seemed to sharpen itself in the pregnant pause that followed, almost ready to tear down the doors and streak out into the rain with its acuity.
“You should no longer put this label on us, as if all the people of Wenzhou are part of this circle, that they all have this nature,” Jingyi Chen protested indignantly. He is one of the core members of EOS Wenzhou. He keeps a cleanly-trimmed head of hair, dressed in a plain white t-shirt. He paced fretfully across the tea room floor, repeatedly emphasizing, “This time we really just want to do something of value, we won’t tolerate anyone using that identity of ours to go and manipulate the market again.”
And yet, when they were reported to have tossed 4 billion yuan into the market just two days ago, they were preening with pride at the publicity for their “Wenzhou Gang”.
At the beginning of April, a group of Wenzhou folks who often gathered in secret, decided that they wanted to do something big together. This grand event celebrated their decision to run to be one of the 21 block producers for EOS globally. In attendance at this feast were people in the blockchain industry, and world-renowned celebrities and organizations.
This group of Wenzhou folks are local entrepreneurs who have run businesses in physical goods and services (or what the Chinese call “real economy”, as opposed to digital economy, basically fundamental industries like agriculture).
It is a stretch to say that they are in any way interested in the fundamental technology. At the most, some of these people could smell the opportunity rolling off blockchain and cryptocurrency, and so used the profits from their traditional businesses to invest in mining pools and mining farms. In the small area surrounding Wenzhou, they are considered the pioneers in blockchain among their enterprise-minded peers.
There are 12 known members in the EOS Wenzhou core team. Shengmao Zhang is the earliest to suggest contesting as a block producer, so the team calls him their “big boss”; Jingyi Chen (our gentleman pacing in the tea house earlier) is the third on the list. The second place goes to Dongge, famous among those in the blockchain space in Wenzhou — for he had invested in the earliest Chinese mining pool, F2pool.
Comment: For more about F2pool, check out my other article detailing the story of Shenyu, one of the pioneers in the Chinese crypto community. Also, F2pool is still top 5 in Bitcoin mining, #1 in Ethereum and Litecoin and #2 in ZEC in the world.
Before the media blitz covering their participation in the block producer elections, nobody knew that Shengmao Zhang and team had formed the EOS Wenzhou group. Zhang took a decidedly more straightforward approach in announcing their candidacy, and repeatedly used the phrase, “we of the Wenzhou Gang…”.
Within a day of that announcement, EOS jumped 20%.
Zhang was delighted by that turn of events, but even after gaining fame, his first statement was: “The price has risen, but there are still people who haven’t bought enough EOS.”
Subsequently, the heat that this whole fiasco generated drew the critical attention of tier one investment organizations. Even a well-known figure in the blockchain investment space wanted someone to connect him to this “Wenzhou Gang” so that he could understand them better.
Before he got famous, Zhang had stated that he strongly desired to continue being a grassroots leader, rather than sell out to becoming mainstream. Zhang once even warmly invited media to attend him in Wenzhou, to see for themselves how their team could successfully instigate local businesspeople to buy into EOS with large sums of money, just over the course of one meal.
Now it seems, he did gain fame and fortune, but it came at the price of exposing his fragile side. Zhang is now feeling the double-edged sword of being so strongly associated with the label of “Wenzhou Gang”, starkly presented in the public eye.
On that rainy night, their members were so agitated and restless because of the rumor that the Wenzhou Gang had moved on to another public chain after pumping up EOS. In other words, they were insinuating that the Wenzhou Gang was out to “feed off the fish” again — the very reputation that Chen was frantically protesting.
Comment: Again in Chinese, the expression “割韭菜” literally translated means to “cut the amaranths”, a term which I generally loosely translate to fish (as in whale/fish).
The first impression that came into the minds of others was that of the stock market Wenzhou Gang of old — heavy-handed and aggressive, they would snap up a stock like crazy, wait for the price to rise, ruthlessly dump it; and the poor souls who turned up in time to buy but not in time to sell, would lose everything from profit to principal.
However, Zhang and his EOS Wenzhou block producer team, and the group that was pumping up another public chain, were completely different teams — Zhang even said he does not know the other Wenzhou denizens in question. But after the mainstream media lumped them all under “Wenzhou Gang” and hyped the news of their nefarious activities, some of these second-rate publications saw their own readership soar from the usually 2–3,000 readers to crossing the 10,000 readership mark.
The EOS Wenzhou team bristled with resentment at the unfairness of it all.
“They are clearly using us to steal the limelight, and deliberately making it seem like we are all in it together to earn some eyeballs.”
The six EOS Wenzhou members, gathered around the massive tea table, refused to leave even though it was already midnight and the rain had since stopped. They even lost their taste for the tea long ago. They were solely focused on this conundrum of dealing with this ill-intentioned attack by the other Wenzhou gang.
That night, Zhang was not in Wenzhou, as he had gone to Bejing; Dong was silently brooding, so Chen became the narrator and analyst for the night.
“We are not speculators, we are not here to manipulate the markets. We are only here to win the EOS block producer contest, so we can find a new path forward for those of us in the physical businesses,” lamented Chen, “We just want more people in Wenzhou to know about blockchain, and to be able to keep up with the trends of the time.”
“This whole business has now misled investors, and affected us — we can’t live with this same label any longer. My greatest worry now is, as news festers more deeply, it will destroy our reputation and affect our chances in the block producer competition.”
Here, he put his foot down and declared that they would no longer use the term “Wenzhou Gang” on themselves. These two words have gone beyond casting a shadow on the stock speculators crowd, to besmirching their EOS Wenzhou team name too.
Speculating on coal, speculating on real estate, speculating on stocks
The wary attitude that the world casts towards the Wenzhou Gang justifiably stems from history.
Delin Li, a financial commentator, once described the “Wenzhou Gang” as:
In the market, wherever sightings of the Wenzhou Gang have been reported, there is sure to be a catastrophe. In coal, they collapsed the market in Shanxi. In stocks, they caused flash crashes of stocks. In real estate, they decimated the market for futures.
As early as the 1980s, some Wenzhou denizens had already entered Shanxi. With the gradual liberalization of the coal market, some began to invest in coal mines through contracting, joint ventures and other forms of business.
In 2004, the “Wenzhou Coal Speculation Group” became the focus of major media reports. As reported then, 60% of Shanxi’s small and medium-sized coal mines have been contracted by the Wenzhou Coal Speculation Group with an investment of more than 4 billion yuan. The coal mines they control have an annual output of more than 80 million tons. This output is 20% of the annual coal production of Shanxi Province, and 5% of the country’s annual coal production.
In 2005, frequent mine accidents caused the Wenzhou Coal Speculation Group to become heavily criticized, and there was news that Shanxi served cease-and-desists to the Wenzhou Coal Speculation Group. The incidents even caused strong alarm among those in the government of Zhejiang Province, and they launched an official investigation into the situation. It issued the “Investigation Report on the Situation of Private-owned Wenzhou Enterprises in Shanxi Province to Establish and Manage Coal Mines”, which surprisingly proved that the Wenzhou businessmen were in fact investing in the Shanxi coal mining industry, and not necessarily speculating only.
The other face of the Wenzhou Gang is reflected in real estate.
In 2001, 157 people boarded a train in Wenzhou to Shanghai, with the explicit purpose of buying real estate. They filled three train carriages. The organizers needed a loudhailer while standing at the head of the group, or those in the back would not be able to hear. Within three days, this group bought out more than 100 houses — and made an immediate profit of a whopping 50 million yuan in one fell swoop. With this seminal trip, the curtain lifted upon Wenzhou’s later indiscriminate and large-scale buying of real estate in the country.
It is said that at the peak, just within the Yongjia area of Yueqing, there were 80,000 people involved in speculating on real estate; in the list of the top 100 companies in Wenzhou, more than 40 local manufacturing tycoons were happily engrossed in playing these real estate games.
Heading into 2017, the third incarnation of the Wenzhou Gang in stocks emerged into the public eye as the administration singled them out for name-calling.
In April 2017, the China Securities Regulatory Commission notified the public of 16 cases of stock speculation for new stock. The Shanghai Stock Exchange referred specifically to the “Wenzhou Gang”, pointing out that these speculative efforts involved “accounts mainly concentrated in Wenzhou, Zhejiang and nearby locales, and show signs of spreading to other regions”. They continued by exposing the new speculative techniques used by the Wenzhou Gang.
The CSRC followed through by making an example of punishing Yongwei Ma, who borrowed funds from entrepreneurs involved in several traditional industries, and promised a profit-sharing scheme. With this initial capital in hand, he proceeded to manipulate the stock price and made a killing with his efforts.
This is the harsh reality of the “Wenzhou Gang” image of old, which has transferred the same deep-seated suspicions that the crowd has to the EOS Wenzhou team.
On April 23, ever more EOS holder began to protest the legitimacy and contesting rights of EOS Wenzhou. They feared in their hearts that if the Wenzhou Gang were to lose the block producer candidacy elections, they would dump the stock price to a critical low; and many worried that they were abusing their position and were engaging in underhanded practices. All of history involving the Wenzhou Gang has unfortunately painted this smear upon the team, just because of a name.
Local media allowed only
Despite the market chasing new highs, there was a palpable sense of panic in the air. On April 25, the EOS price rose on consecutive days to go from 60 yuan to about 100 yuan, but subsequently fell to about 93 yuan.
At this point, a blockchain investor suddenly told reporters that he believed the Wenzhou Gang might have started dumping. There was no accurate source to back this claim up, but in his heart it was hard to untangle the threads binding the twin entities of price manipulation and the Wenzhou Gang.
That rainy night marked a watershed for the Wenzhou Gang in terms of their attitude towards the world.
EOS Wenzhou proposed a new approach: “There is no Wenzhou Gang, and we strongly refuse to feed off fish”. They made a statement, saying: “These few days, our friends from Wenzhou have consistently bought into EOS to support EOS Wenzhou’s bid to contest as block producer, causing a boom in market sentiment. Since Wenzhou is so popular now, we noticed that there are many sh*tcoins claiming that they were invested in by the Wenzhou Gang, and many fake projects naming Wenzhou Gang as their supporter, all in a bid to make a killing off gullible fish.”
This is to combat the information that the other Wenzhou Gang had invested in other blockchain projects, and to give a proper response to the allegations that had lumped them all together in the same vein.
They only realized later that this was not a robust enough response, as it only pointed out that the other party was anonymous and hostile; it did not clearly address the evidence of the sh*tcoins and fake projects to prove the identity or intentions of the adversary.
On April 24, EOS Wenzhou suddenly entered a period of “election silence” — but prepared stories of each of their team members’ business backgrounds and ups and downs, to be shared with the world.
“Well, first, we already amassed enough votes so we didn’t need any more publicity; secondly, there was just too much conjecture spreading about us,” said Zhang on April 26 about the sudden silence. Having cloistered himself for the longest time in Wenzhou, he could not comprehend the severity of the allegations leveled against them by outsiders, and decided to just default to silence instead.
After returning from Beijing, Zhang refused all media interview requests, only granting them to two local media: Wenzhou Daily and Zhejiang Daily.
“Let’s not stick out so much, the previous episodes with real estate speculation and stock speculation have already given us such a bad name. Now that we are entering blockchain, we should be more low-key, and not let anyone on the outside know too much,” a person in charge of the Wenzhou Business Association approved, believing that EOS Wenzhou’s election silence was the right thing to do.
Can blockchain save the Wenzhou Gang?
Onthat election silence declaration day, gathered around a dinner table in Wenzhou were a group of denizens who had missed out on the stock market speculation boom. Some of them were already part of the EOS Wenzhou community, while the others had no idea what EOS was, and was eagerly awaiting the sermon by EOS evangelists — on their way to the heaven of wealth, onboard the train of riches.
Speaking excitably about the genesis of the “Wenzhou Gang”, a young participant who had witnessed the thrill of those experiences past, seemed overwhelmed by the thought. The rest in attendance, however, left their personal experience vague, choosing to focus more on reminiscing on the general trends and feelings at the time with others. “You don’t always win after all, there are also times when you’ve lost so much you’re left slapping your own thighs in shame and gloom.”
But in the eyes of the Wenzhou businessmen, this is solid proof that their next generation continues to participate actively in the frontier of the national economy.
One Association member even said that the way of Wenzhou business has been developed over three generations.
The first generation of Wenzhou rose from the ashes of the Chinese reform and opening up of the market.
In the southeastern part of Wenzhou, Zhejiang, the entire area consists of just “seven mountains, two water bodies and one field”. Surrounded by mountains, only Lijiang River flows into the sea. There is a shortage of natural resources, but it has a large population with 9.2 million permanent residents.
Back in the day, Wenzhou people struggled to feed themselves through agriculture, so manufacturing flourished in the private sector. The first generation of Wenzhou business was born of this trend. They were represented by the “eight kings” of industry, churning out hardware, miner’s lamps, screws, used goods, and coils… In the 1990s, small factories engaged in these operations gradually developed into full-blown enterprises that spanned the country.
The real estate speculators and stock speculators that emerged later were, thus, the second generation of Wenzhou business, according to the aforementioned Association member.
They were closely related to the fortune of the first generation of Wenzhou merchants. It is precisely because of the rise of this first generation of Wenzhou business that people had money, which also led to the meteoric rise of the real estate market in Wenzhou.
A retired leader of the Wenzhou Council for the Promotion of International Trade observed that real estate speculation first grew in interest and ability locally within Wenzhou. Due to the strong economic development in places such as Rui’an and Yueqing counties in Wenzhou, the skyrocketing incomes caused housing prices to be comparable to those in Shanghai.
He believes that the Wenzhou real estate speculators were initially a force of good in the real estate market. At the time, the national real estate market was severely lagging behind, and developers did not have the money to build new projects; and even if they managed to build it, they were not able to sell it. With the influx of Wenzhou people participating in the real estate market, many troubled real estate developers were revitalized, and were able to make money and continue developing again.
“It was originally very positive,” he reminisced. However, Wenzhou, nicknamed by Chinese as the “Oriental Jews”, had boundless ambition to possess ever more wealth. “And so, they speculated and manipulated, stirred up sky-high prices, raised housing prices nationwide, and blew their own names into the annals of bad reputation.”
After the financial crisis in 2008, coupled with the rise of the Internet, those of the second generation who did not jump into the real estate speculation space started to realize that their opportunities were increasingly narrow. Hence, they figured that instead of investing in the “real economy”, it is better and easier to simply invest in speculating real estate and stocks.
In this period of epiphany, Wenzhou real estate and stock speculation reached a climax.
The Association leader above said that this period still saw some businesspeople who stuck to their guns and built solid, fundamental businesses, but the majority of them turned to speculation instead.
What this majority who took part in the property market and stock market speculation didn’t realize, then, was that they had missed the threads of an economic boom — a massive boom originating from the Internet.
Every time this topic is mentioned, Zhang and other Wenzhou businesspeople would sigh insufferably, saying that their hearts were steeped in despair.
In their minds, ever since the Chinese reform, Wenzhou had been at the cutting edge of the times. But the one opportunity that Wenzhou did not seize and capitalize on was the Internet era.
Since housing prices in various Chinese cities were reaching the ceiling, and after the stock market experienced a severe setback in the stock market disaster of 2015, with supervision becoming more stringent, there have been fewer reports of the emergence of the Wenzhou Gang. Looking back introspectively at their own industries, they found that the Internet presented pressure and practical challenges of all kinds.
EOS Wenzhou’s community leaders reiterated time and again that they were not playing to the hype this time, because they were serious. They fervently hope that blockchain technology can bring the same opportunities that the Internet has brought Hangzhou to Wenzhou, and put Wenzhou back on the cutting edge.
However, it is still a big unknown whether these expectations will come to pass. Even if they were elected as a block producer, this alone cannot guarantee the economic regeneration and opportunities that they profoundly crave. Technology and talent are resources that they desperately lack, and have to be addressed no matter the outcome of the election.
The global competition to be an EOS block producer is already burning up white-hot.
Unlike other EOS block producer candidates around the world who have gone on tour, EOS Wenzhou has not organized a single road show. Whoever owns EOS owns votes, but they have already decided not to canvass votes in that manner. Their favored approach includes lavish dinners, offline meetups, word of mouth among friends and relatives — pulling together the local community so everyone buys EOS together, and buys enough voting rights.
Many of their peers disapprove of the way that they are garnering votes. Despite whatever protests they may have, however, the EOS Wenzhou community is growing larger by the day, and it won’t be a surprise if they already possess one of the largest number of potential votes in the world.
(￣^￣)ゞ ☆ END .*:ʕ•ᴥ•ʔ:*.
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