Banking & Finance, Talking Point

The day after Tomorrow

Who is the mysterious billionaire allegedly abducted from Hong Kong?


Whereabouts unknown: the missing tycoon Xiao Jianhua

A corrupt Chinese businessman is hiding out in the International Finance Centre (IFC), the tallest tower in Hong Kong’s financial district. He is the money man behind several powerful criminal rings that overseas investigators badly want to interrogate. However, as Hong Kong hasn’t signed an extradition treaty the said investigators can do nothing about him.

That is until a special agent takes matters into his own hands. What follows is a spectacular case of cross-border (and illegal) enforcement. The agent smashes into the businessman’s headquarters and airlifts him across the border with a stealth aircraft. Before the Hong Kong police figure out what is happening, the man has been spirited away.

If that sounds familiar it’s because it’s the plot of the Batman movie The Dark Knight (released in 2008). But that fictional tale was partly reprised last month at the Four Seasons – a luxury hotel that’s also part of the very same IFC complex in Hong Kong.

Xiao Jianhua, an influential but mysterious financier from mainland China – and a longtime resident of the hotel’s serviced apartments – was allegedly grabbed by special agents and taken back to the mainland.

The snatching is massively controversial. Under Hong Kong’s “one country, two systems” constitutional setup, mainland authorities are not allowed to send law enforcers to operate in the former colony. Xiao’s current whereabouts has thus become a hot topic, and questions are being asked about why such huge risks were taken to spirit him back to his homeland.

Not the first abduction?

A similar episode happened this time last year.

Several staff at a small Hong Kong bookstore which published tabloid-style tales on the inner workings of Chinese politics were allegedly taken across the border by Chinese agents (see WiC311). Subsequently, thousands of Hongkongers took to the streets to protest because they thought the city’s autonomy and freedom of speech were being compromised.

Xiao Jianhua’s alleged abduction has not resonated quite as much because he and his investment firm Tomorrow Holdings are less familiar locally.

However, financial (and political) big shots who’ve had dealings with China have heard of the low-key 46 year-old billionaire. And more people started to take an interest at the beginning of this month when overseas Chinese media began to publish unconfirmed reports that Xiao had been taken away from the Four Seasons on Chinese New Year’s Eve (that is, on January 27th).

Hong Kong media followed up. Citing “a government source with knowledge of the investigation”, the South China Morning Post got information that Xiao left the hotel with a number of unidentified people.

Later the hotel handed over surveillance footage to local police, and reports initially said there were no signs of force in the exit (Xiao was said to be protected around the clock by female bodyguards).

Hong Kong’s security chief, Lai Tung-kwok said on Wednesday that there was no indication that Xiao had left the city against his will or that mainland officers had enforced Chinese law in the city.

But the New York Times has been depicting a different situation. Also citing people with insider information, the newspaper reports that Xiao was taken out of the Four Seasons “in a wheelchair, his head covered by a sheet or a blanket” by about half a dozen unidentified men. “He is believed to have been transported by boat from Hong Kong, eluding border controls, and is now in police custody in mainland China,” the paper added.

Rather bizarrely, Xiao himself has come up with a different version of events. In a statement published by his company, he explained he is “receiving medical treatment abroad”. Xiao adds that he is a Canadian citizen, although he describes himself as a “patriotic overseas Chinese” who has never harmed China’s national interests.

“The mainland government is civilised and practices the rule of law. Please do not make the mistake of thinking that I was kidnapped,” the statement urged. “Please do not worry about me.”

What was he doing at the Four Seasons?

Since Chinese President Xi Jinping unleashed his anti-corruption campaign in 2013, a number of tycoons have booked into the hotel as a luxury hideout from prying authorities.

Some of them may not actually be subjects of anti-graft investigations but many are worried about being asked to give evidence and thus have decided that the safest option is to flee mainland China until the situations is a little more predictable.

The result is that the Four Seasons has earned a local nickname as the “north-facing watchtower” and become the place where anxious mainland tycoons gather to gossip or exchange intelligence (often in the swimming pool, rumour has it, where they can be sure that their interlocutors aren’t wearing a wire, see WiC263).

Indeed, Xiao seems to have been personally responsible for spreading much of the hotel’s reputation as a refuge. For years he has been living in the five-star property, where he would meet bankers or businessmen who wanted to deal with him. This put him firmly on the radar of the Hong Kong business media. In January 2014, Xiao was the front page story for Next magazine, which sent a team of paparazzi to stalk China’s “most mysterious financial crocodile”.

It turned out that he had booked extended stays in more than 10 luxury rooms at the hotel but that he rarely left the nearby IFC tower and its surrounding shopping mall. When he did, he would be protected by female bodyguards.

Approached for an interview, Xiao offered the Next reporter a job “dealing with the media”. Eventually he offered written answers to the magazine’s questions. Notably, Xiao said he had good connections with powerful princelings in China, including Zeng Wei, the son of former Vice President Zeng Qinghong (and the right-hand man of former leader Jiang Zemin), although he denied any “business dealings” with the vice president himself. “There is not a penny in my company which comes from the families of Chinese leaders,” Xiao claimed.

Five months later, the New York Times would also publish a profile on Xiao. Describing the billionaire as “something of a banker for the ruling class”, it noted that Xiao had admitted through a spokeswoman that he had helped Xi Jinping’s relatives dispose of their assets when the Chinese president came to power in 2013.

What does Tomorrow hold?

Xiao was born in 1971 in Feicheng, a rural county in coastal Shandong province. His father was a middle school teacher and Xiao junior showed excellent potential when he was young. At just 14, he passed the highly competitive national college entrance exam (the gaokao) and was admitted to the prestigious Peking University (also called Beida – it is the alma mater of China’s Premier, Li Keqiang).

(According to the feature in Next magazine, Xiao thinks his genes are so blessed that he wants each of his many girlfriends to bear his children. “Allegedly he has more than 30 children. He gives the women $50 million for each kid,” Next salaciously reported.)

Xiao became the president of Peking University’s student union in 1989. But his career was not derailed by the student-led protests in the same year. On the contrary, as the New York Times has noted: “It is a career made possible, in good part, by the 1989 unrest – or, more precisely, by China’s reaction against it.”

The response included deeper market reforms and Xiao began his entrepreneurial career in the early 1990s as a state-funded computer trader, selling American-made PCs near the Peking University campus. After making his investment capital, he founded Tomorrow Holdings and ventured into the stock market in the late 1990s. Over the next decade, when the stock market was unknown territory to most Chinese, Xiao set up dozens of investment firms, many of which were linked to agencies run by municipal governments. His wealth swelled. New Fortune, a magazine, ranked him as the 14th richest man in the country last year with a net worth of Rmb50 billion ($7.28 billion).

After spending three months unpicking the vast quantity of different entities under Tomorrow, the magazine also reported that Xiao was in control of at least nine listed firms, as well as 30 or so finance-related companies.

HK01, a news website which publishes a weekly newspaper, has reported this week that at one point Tomorrow exercised control over at least five Chinese brokerages (the highest number among privately held firms apparently) while its various affiliates have owned stakes in a dozen or so regional banks.

More remarkably, HK01 notes that Tomorrow is one of the very few financial firms that has obtained all of the seven available licences in banking, insurance, brokerage, trust, asset management, futures trading and leasing. (The only others which have them all, HK01 says, are state giants Citic and Everbright, as well as the parent firm of Ping An Insurance.)

“The asset size of Tomorrow’s empire totalled nearly Rmb1 trillion,” HK01 suggests. “But no outsider would know if this is just the tip of the iceberg.”

This tangled financial network has enabled Xiao to set up numerous “shadow shell companies”, HK01 notes, through which he has invested aggressively in the stock market. It says this means counterparties or business partners wouldn’t necessarily be aware that they ‘re dealing with China’s “most mysterious financial crocodile”.

The New York Times also notes that shell companies are widely used in China as investment vehicles to hide the ownership stakes of public officials. “Their frequent use by Xiao has fanned speculation that he gets privileged access to deals involving state assets and that he shares the benefits with the families of the ruling elite,” the newspaper suggests.

Is Xiao behind these big deals?

One of these controversial transactions came in 2006 in Xiao’s native province when control of Luneng, the largest state-owned conglomerate in Shandong, was sold to two little-known private firms for about Rmb3.7 billion.

Respected local business magazine Caijing then reported that Luneng was actually worth more than Rmb70 billion. According to Caijing, several of the “shell companies” involved in this privatisation were affiliated with Xiao and Zeng Wei (son of Zeng Qinghong, the nation’s former vice president).

Caijing’s founder Wang Boming is believed to be a close ally of Wang Qishan, then mayor of the city of Beijing, and now China’s graftbuster- in-chief.

But the article – titled ‘Whose Luneng is it?’ – was banned from appearing on the Chinese internet for years. Coincidentally, Hong Kong’s Apple Daily says it has been republished since Xiao’s alleged abduction from Hong Kong.

Being too closely acquainted with China’s political powerbrokers can sometimes backfire when it comes to sealing overseas deals. In 2009 when American insurance giant AIG was desperate to sell its Taiwan unit Nanshan, an obscure Hong Kong-listed firm called China Strategic was picked as the unlikely winning bidder. Taiwan’s media soon uncovered that Xiao was involved in the takeover. His apparent guanxi with Chinese princelings such as Zeng Wei, Taiwan’s Business Today magazine noted, was one of the reasons why the sale eventually got cancelled.

But what deal specifically might have got Xiao in trouble? One candidate is a 2012 transaction involving a Hong Kong-listed firm controlled by Che Feng, the son-in-law of China’s former central bank governor Dai Xianglong. This saw a Xiao-related entity assist in the acquisition of a Hollywood visual effects studio. At $30 million the deal was small but according to NetEase Finance it also involved an individual who was believed to be the bagman for Ma Jian, a former deputy minister with China’s state security ministry.

Both Ma and Che were purged by graftbusters in 2015. The legal proceedings against the former began this month, roughly at the same time Xiao departed so dramatically from the Four Seasons.

What exactly has Xiao done wrong?

HK01 concludes that there are many “capital crocodiles” like Xiao in the Chinese stock market. However, the often opaque dealings of these financiers rarely leaves anything on the table for retail investors. Their personal gains sometimes eat into state interests too. “Xiao Jianhua is not a wealth creator but only a wealth transferor,” HK01 opines.

There are unconfirmed reports that Xiao could also be involved in the investigation into the A-share market’s infamous meltdown in 2015 (see WiC288). For the moment it remains uncertain if Xiao was taken back to China against his will. But even if he has been, it is unclear whether he will be subject to an official probe himself or whether he is needed to testify on other cases (such as that of Ma).

Political analysts generally agree, however, that he could be used as a source of leverage as China’s top politicians prepare for the all-important Party Congress later this year (the session will confirm Beijing’s top leadership for the coming five years). That political motive aside, his disappearance may dovetail with the fight against corruption too. Xi’s graftbusters have been shifting their attention to the financial markets in recent months and Caixin Weekly notes that Liu Shiyu, the China Securities Regulatory Commission’s chairman, has sent out repeated warnings about punishing market manipulators since late last year.

For instance, in December Liu took a swipe at hostile takeover attempts by powerful insurers (seemingly in response to the activities of Anbang and Baoneng, see WiC300), describing unsolicited attempts to acquire big stakes in major listed firms as the work of “barbarians and demons”.

Speaking at a high-level meeting of the CSRC last week, Liu vowed again that regulators would hunt down “big capitalist crocodiles” who “skin and suck blood” from retail investors.

Who are the villains in question? This has become a popular guessing game across China’s social media. Tellingly, state stalwart the People’s Daily has just offered one of the best answers in an article posted on WeChat, directly naming Xiao as one of the most notorious in a trio of such “big crocodiles”.

“The hunter [Liu Shiyu] has vowed to hunt down the big crocodiles. The public should wait patiently for the result,” the article promised.

As we wait to find out who the next crocodiles are, more than a few guests might be double-locking the doors of their suites at Hong Kong’s Four Seasons…

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