THE promise of risk-free, double-digit returns made the “Daily Golden Jewel” investment offered by an obscure commodities exchange in China hard to resist.

    Now the Fanya Metal Exchange in southwestern China said it cannot pay investors their principal.

    The exchange in rare metals has become the focus of wrath by Chinese investors who feel duped by an investment they thought was State backed — an assumption that is not rare in a country where the lines between private and public enterprise are often blurred.

    “We just hope the government can face up to this problem,” said a 35-year-old man surnamed Wang, who said he had invested 500,000 yuan (US$79,000) in the product. He was among about 150 protesters in front of the Shanghai office of China’s banking regulator. Similar demonstrations have been held in recent weeks in Beijing and Shanghai.

    Fanya did not return calls requesting comment. The exchange, regulated by the local government in Yunnan Province, trades 14 minor and rare metals and offered a range of investment products based on the metal stored in its warehouses.

    The “Daily Golden Jewel” investment promised annualized returns as high as 13.7 percent and the right to withdraw funds at anytime. Fanya guaranteed the product, which was based on rising metal prices and interest earned on financing deals.

    But in July, the exchange said it had experienced liquidity problems since April after investors tried to withdraw their holdings. Demand for the metals has been falling this year and Fanya’s warehouses are now bulging with stock. It holds more than 19,000 tons of bismuth — used in alloys, flame retardants, castings among others — enough to meet global annual consumption more than twice over, according to 2012 figures.

    Fanya said 80,000 investors are involved and the outstanding investment was 36 billion yuan.

    This is not the first time defaults on so-called wealth management products and similar investments — marketed by banks but often backed by high-risk or speculative projects — have sparked protests in China. Investors often assume that banks or the government will cover any investment losses, leading to conflicts when banks baulk.

    It is unusual though for investors to protest in Beijing and Shanghai in front of government offices, such as the securities regulator — he China Securities Regulatory Commission (CSRC).

    Many investors cited apparent support from Yunnan government officials and major commercial banks as a key reason they invested.

    “The ad was playing on China Central Television for a month in 2014,” said one Shanghai retiree investor.

    The Fanya exchange describes itself as government-backed and government regulated. Its website also provides examples of government support for the exchange, including a note that it is a “cooperation enterprise” of the National Bureau of Statistics.

    The investor protests started in Yunnan and spread to Beijing and Shanghai after efforts to be heard through official channels were frustrated.

    A complaint filed with Yunnan’s finance authorities was rebuffed in August, a copy of the decision shows. Police in different jurisdictions accepted the case but there has been no follow-up, two investors said.

    Lawyers say the chances of successfully suing the exchange are low, so they are reluctant to take on the case, one investor said.

    “If we sue by civil law, it will be difficult for us to get back the money. But when we try to sue through the criminal system, we are not even accepted,” said a 36-year-old woman from Shanghai, who declined to give her name.

    Anne Stevenson-Yang, research director at J Capital Research, said in many cases investors assume a product is government guaranteed/backed and so they fail to read the fine print. (SD-Agencies)