As for Wanda's crowdfunding scheme, the 5 billion yuan raised will be just part of the finance required to build the five shopping centers. But the move is part of a plan to transform the group into a property management company that relies on outside investors to fund major building projects.
"A closer look at the crowdfunding project shows some interesting points," Jin Yu, a property peer-to-peer lending platform, said. "The investors are not taking a share in Wanda Group, so they are not entitled to dividend payments like equity holders."
Wanda put it a different way, describing the scheme as an "innovation in crowdfunding". Investors receive 6 percent on their return from annual rents collected from retail outlets at shopping malls.
The other 6 percent can take between three years and seven years after the project is listed on the Shanghai Stock Ex-change or sold to an investment group. If that does not happen, the company has promised to pay back the original investment with a 50 percent bonus after seven years, which will translate into an annualized rate of between 12 percent and 20 percent.
"Equity crowdfunding" may become the next big trend after being endorsed by Premier Li Keqiang last year in a move to increase innovation and entrepreneural ventures.
"In China, crowdfunding is not really that different from P2P lending," Fu Yichen, an analyst with China Real Estate Information Corp, said. "In the name of equity financing, developers are doing direct debt financing."
Sun Hongsheng, chief executive officer of Zhongchou.com, one of the first crowdfunding websites in China, stressed that there are many different aspects in property investment models from traditional crowdfunding in the US and Europe.
"Investors can participate in a project simply to receive a financial return," Sun said. "They can also get special deals from retailers, win prizes or a combination of all three."
A scheme on his website, launched by resort hotel group Ammo in Sanya, plans to raise 10 million yuan through crowdfunding.
Investors will not only get a financial return from the business operation, they will also receive coupons, which they can spend at the group's chain of hotels. Prizes such as a box of chocolates or dinner for two are other incentives.
Another crowdfunding project set up by Zhongchou.com and Vantone Real Estate, a major Chinese developer, allows investors to buy customized apartments. These are developed by Vantone at a discount price, which has yet to be released. "Even so, many small developers see crowdfunding as a marketing tool that will help them sell unsold properties," Sun said. "To prevent risks, we only cooperated with a few State-owned, big-name developers."
There are other concerns as well. China's Corporate Law and Securities Law have a 200-shareholder ceiling before a project is consider to be an initial public offering or IPO. That, of course, has to be approved and supervised by the China Securities Regulatory Commission.
Even with less than 200 investors, there are still legal implications.
Known as "private placement", which is the opposite of an IPO, there are regulations governing the net assets of investors and how much they can invest in a project. This goes against the whole ethos of crowdfunding, which can involve thousands of investors from all walks of life.
Zhao Yanchun, a lawyer from Allbright Law Offices, is convinced the regulations should be changed for "equity crowdfunding" to allow small investors to take part. He also believes that tougher disclosure measures for companies would reduce the risk factor.
"Online information disclosure by companies is not up to standard," Zhao said. "Company valuations are rarely backed by a trusted third-party."
Despite the challenges ahead, crowdfunding looks here to stay. "The China market alone could represent $48 billion in crowdfunding by 2020, if the country liberalizes its law to allow more equity funding," Richard Swart, a global alternative finance researcher at the University of California, Berkeley, Haas School of Business, said.
