Back in the spotlight

Xiao Yaqing: once boss of Chinalco, now a rising political star

“China has too many engineers and we have too many lawyers. Let’s trade.” That was the quip from former US President Bill Clinton on a trip to Beijing in 1998. Although said in jest, Clinton’s observation about the career paths of the last two generations of China’s leaders bears out the dominance of the engineering mindset. The likes of Jiang Zemin, Li Peng, Zhu Rongji, Hu Jintao, Wen Jiabao and even current central bank boss Zhou Xiaochuan were all engineering alumni before becoming part of the political elite.

Years of focus on industrial development makes it less surprising that China’s technocrats have enjoyed a rapid rise up the career ladder. But as the People’s Daily has noted, the “era of engineers’ rule” looks like it might be coming to an end as the country seeks more balanced growth. In keeping with Clinton’s observation, the lawyers are fighting back too. Premier Li Keqiang studied law at Peking University, while Chinese president Xi Jinping is said to have a doctoral law degree, according to his official biography.

But there is an exception to every rule, and in this case it might be Xiao Yaqing. An engineer by trade and former head of state aluminium giant Chinalco, Xiao is a rising star in the Chinese cabinet. Although he has largely stayed out of the public eye over the last four years, he was back in the headlines last month when he was sent as representative of the central government to console the families of the passengers on Malaysian Airlines flight MH370. According to reports on the Chinese language website of the Financial Times, Xiao’s arrival was timely and he needed only “a microphone and a few sentences” to win over family members linked to the missing plane.

Born in 1959 in Beijing, Xiao is a member of the famous 1982 cohort, the first college class to graduate after the reopening of the universities following the end of the Cultural Revolution. The 1982 class grew up amid political chaos but came into the workforce at precisely the moment that China started to experiment with market reforms. Xiao’s major was engineering which he studied at the Central South University. Two other alumni from the Hunan-based college – Liang Wengen of Sany Heavy Industry and BYD’s Wang Chuanfu – would go on to top Hurun’s Rich Lists.

Xiao has devoted his career instead to the public sector, starting out with a government-assigned job at a light alloy plant in Harbin near the Russian border. Known locally as “Factory 101”, it was founded during China’s first Five-Year Plan and had strong links to the military. Research conducted by its engineers contributed to the making of China’s first atomic bomb and, at one time, the plant supplied 60% of the aluminium used by the Chinese aircraft industry. Xiao climbed the ranks to become chief engineer and was appointed as the factory’s general manager in 1998.

In the following year Xiao was sent to resuscitate another aluminium firm based in Chongqing. Xiao turned it around and his success won him accolades from another engineer: then-President Jiang Zemin. The aluminium firm was subsequently absorbed by Chinalco and Xiao was appointed commercial head of the state giant in 2004, becoming the senior Party figure at the firm. At 45, Xiao stood out as the youngest SOE boss.

Xiao led Chinalco on a spending spree, taking over other troubled state-owned aluminium firms. It grew from a seven-plant company into a quasi-monopoly in the aluminium industry and by 2007, it was among the 10 most profitable state firms with a net profit of Rmb20 billion ($3.21 billion). When commodity prices collapsed in 2009, Xiao convinced the State Council to get the State Reserve Bureau to buy up aluminium and other metals. Chalco, Chinalco’s listed subsidiary, was the most obvious beneficiary.

Before then, Xiao had been assigned another bold project: an attempted takeover of mining titan Rio Tinto. Following a number of smaller acquisitions in Peru and Australia, Chinalco went for its biggest prize in 2007, splashing out $14 billion for a 9% stake in Rio Tinto and becoming the biggest shareholder of the Anglo-Australian firm. It also had an option to double its stake, although critics questioned whether Chinalco had paid over the odds. But Xiao was adamant that the deal had to be done. “We are the latecomer and a latecomer has to pay a higher price. If we don’t do it now we may not have the chance again in the next 10 years,” he told the Talent magazine.

Chinalco’s bid was also seen as a strategy to prevent Rio from being acquired by its rival BHP Billiton. Any merger between the two leading iron ore firms was regarded as bad news for China, the world’s biggest metals consumer. In this respect Beijing saw the deal in national security terms, as a way of providing a stable supply of natural resources. And for Xiao, there were also lessons to be learned on the global stage. “A Chinese firm is sitting at the bargaining table with top global firms,” he said. “This seat doesn’t come easily. We’ve never had such status in the past.”

The next phase of the deal saw Chinalco launch what amounted to a rescue bid for Rio, which was struggling as a result of the downturn in the commodities market. The $19.5 billion bid was set to increase Chinalco’s shareholding in Rio to 18% and also give it direct stakes in a number of iron ore, copper and aluminum assets. Chinalco picked Lehman Brothers as its key advisor. But in June 2009 the deal started to unravel, with Rio walking away to agree a separate venture with BHP. It was a major setback for Chinalco, despite the $195 million break-up fee.

Xiao wasn’t around to handle the political fallout. While the the second Rio bid was still awaiting approval from Australian regulators, he was made deputy secretary-general of the State Council in February 2009, with responsibility for coordinating the body’s day-to-day work. Foreigners who opposed Chinalco bid for Rio said Xiao’s promotion proved what they had long been saying – that the aluminium producer was a front for the state and that its aspirations for international M&A should be monitored accordingly.

For Xiao it was a timely exit. In the years that followed Chinalco would turn from one of the most profitable state firms into one of the worst lossmakers, weighed down by a debt burden inherited from earlier mergers, plus a much less forgiving environment of lower commodity prices and significant overcapacity in the aluminium sector (see WiC229).

By then Xiao had left the scene, becoming an example of a SOE boss that had successfully transitioned to the centre of political power in Beijing.

The Party Congress in late 2012 further reinforced his career prospects when he was picked as one of the members of the Party’s powerful Central Committee, and he was also given a role on its anti-corruption watchdog, the Central Committee on Discipline Inspection.

As deputy secretary-general in the Chinese cabinet, Xiao looks well-placed for further elevation. One of his predecessors in the role, Wang Yang, is now a vice premier.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.