HONG KONG – Xiao Jianhua was once a trusted financier for China’s ruling elite who came to represent an era of rampant capitalism.
But three years ago, he was kidnapped from a Hong Kong luxury hotel and disappeared in Chinese custody. Now, the empire he built is being dismantled by the authorities in Beijing, as China sends a strong message that its era of excess debt is over.
On Friday, two regulators announced coordinated measures to confiscate hundreds of billions of dollars worth of companies linked to Tomorrow Group, the umbrella company that Mr. Xiao controlled for more than two decades.
China’s insurance and banking regulator said it had taken over four insurers and two trust firms connected to Tomorrow Group, while the securities regulator said it had taken control of two securities firms and a futures company, accusing companies to provide misleading information about their shareholders and controller.
By organizing acquisitions, China’s top leadership is revealing a key figure in an era of free finance in which wealthy executives used their political connections to build large companies that collected trophy assets at home and abroad. But the move also runs the risk of a public showdown with a tycoon who knows the secret wealth of people in China’s ruling class.
In many ways, Mr. Xiao’s fate and his empire were sealed in the early hours of January 27, 2017, when a dozen men pulled him out of the Four Seasons Hotel in Hong Kong in a wheelchair and took him to the policeman. custody in mainland China.
Since then, there has been no official news about his whereabouts, although people familiar with the situation said he was under house arrest. Tomorrow Group on Saturday confirmed for the first time that Mr. Xiao was on the mainland, saying that he was cooperating with the government while restructuring the conglomerate.
Long before China tightened its grip on Hong Kong with the security law it imposed last month, Xiao’s disappearance shattered the illusion that the business community in the semi-autonomous territory was beyond the reach of Chinese authorities. It also caused a chill in China’s political class, already affected by the tough anti-corruption campaign launched by Xi Jinping, the country’s leader.
For years, Mr. Xiao’s Tomorrow Group and its constellation of companies have been a source of speculation and mystery, because the final ownership was hidden behind layers of shell companies.
But in a statement made on social media Saturday, Tomorrow Group confirmed that it owned the nine companies and rejected what it called “malicious slander.”
In a sign that Mr. Xiao could still fight, the Tomorrow Group also accused the government of setting obstacles to its operations and exaggerating the risk posed by the nine companies. Authorities “spared no effort to push the acquisition,” the company said.
Chinese censors quickly moved to overturn the statement, which was first reported by The Wire China.
China is trying to identify flaws in a weak economy that survived for decades in a binge on loans. In recent weeks, the banking regulator has purged magnates and other shareholders whom it accused of using banks and insurance companies as personal ATMs.
Along with Mr. Xiao, Beijing has also turned to Wu Xiaohui, who married a granddaughter of former Chinese leader Deng Xiaoping, rose to fame, and bought the Waldorf Astoria Hotel. Wu found himself in the government sights in 2018 when his insurance company Anbang Group was hijacked. He later pleaded guilty to defrauding investors and was sentenced to 18 years in prison.
Mr. Xiao and the businesses he started, most of them hidden within Tomorrow Group’s Russian doll-like layers, illustrated the welcoming ties between China’s business world and its political elite.
From his humble beginnings, Mr. Xiao went to the prestigious Peking University, an institution that would be critical for his entry into the world of finance. There, he led the official student union in a time of political turmoil, when his classmates rallied at Tiananmen Square in Beijing to demand democracy in 1989.
Mr. Xiao was said to have kept his head down at the time, including at one time working with the university to try to reduce tensions with students, before the army crushed the movement, killing hundreds or more people.
After Mr. Xiao graduated and entered the world of finance, he received a state-backed investment from his alma mater for an early business venture. Almost at the same time, he created the Group of Tomorrow.
He used the conglomerate to help finance transactions for the political elite and wealthy Chinese who preferred to remain in the shadows. He helped facilitate partnerships with Mr. Xi’s older sister, as well as Jia Qinglin’s son-in-law, who was then a member of the party’s highest decision-making body.
As Mr. Xiao built his company, China embarked on its greatest period of economic expansion and privatization in the 1990s and 2000s.
Under the Tomorrow Group umbrella, Mr. Xiao amassed stakes in companies that reached every corner of China’s economy, from strictly controlled industries like banking and insurance to rare metals, coal and property. The conglomerate had money at some of China’s largest firms, including insurance giant Ping An, and banks like Harbin Bank, Industrial Bank, and Huaxia Bank.
Huaxia Life, the insurance arm of Huaxia Bank, was one of the companies seized on Friday.
Along the way, Mr. Xiao became wealthy, with an estimated fortune of up to $ 5.8 billion.
After Xi became China’s top leader in 2012, he promised to wage an anti-corruption war against “tigers and flies.” Mr. Xiao was marked as a tiger.
But the two men had a connection that was uncomfortable, given Mr. Xi’s zeal to tackle the graft.
Mr. Xiao acted as a buyer of shares in an investment company owned by Mr. Xi’s sister and her husband, according to an investigation by the New York Times. A spokeswoman for Mr. Xiao told The Times in 2014 that the couple “did it for the family.”
Eventually, the Tomorrow Group grew so large that it threatened the stability of China’s financial system. The most prominent example was his participation in Baoshang Bank, which he used to help finance dozens of companies.
The loans Baoshang made to Tomorrow Group companies remained off the books until recently. Last year, it emerged that the bank was on the verge of bankruptcy. Authorities intervened, marking the first time in two decades that the government had seized a bank.
Billions of dollars of debt lie just below the surface of China’s financial system, much of which is not on the books in transactions by the largest shareholders of banks like Baoshang. Two other major banks failed last year and had to be bailed out. Many experts fear that more than a few banks are running time bombs.
In its statement on Saturday, Tomorrow Group expressed confidence about its future, despite the acquisitions.
“After three years of bumpy roads, the faith is still there,” he said. “We also believe that all efforts will be rewarded, and Tomorrow Group will get a just, fair and promised result.”
Cao Li contributed reporting.
