Matthew Brooker

Fallen Billionaire Offers a Lens on Xi’s China

Billionaires who get on the wrong side of the law aren’t an easy object of sympathy. The trial of Xiao Jianhua merits attention, though, even if its subject may not be deserving. The circumstances and conduct of the case have ramifications that go beyond the fate of this one Chinese-Canadian tycoon who was once worth close to $6 billion.

Xiao went missing from Hong Kong’s Four Seasons Hotel in early 2017, with several media outlets reporting he had been abducted by Chinese security agents, who at the time weren’t allowed to operate in the city. There was no official word on his status until 2020, when Chinese regulators took over nine of his companies and Xiao’s Tomorrow Group confirmed he had returned to the mainland to cooperate with investigations. The Canadian embassy in Beijing said Monday that it was aware Xiao’s trial would take place and its representatives had been denied access. Authorities have said nothing and state media have been silent.

The 50-year-old is widely reported to have elite and military connections, and to have handled transactions for the families of President Xi Jinping and former Premier Wen Jiabao among others, according to the New York Times and Wall Street Journal. While authorities haven’t disclosed the charges against Xiao, defendants are rarely acquitted in China’s courts. There is even more reason than usual to expect a stage-managed outcome this time. The trial arrives at a sensitive moment, with Xi poised to seek a precedent-breaking third leadership term at a five-yearly party congress later this year. Any fireworks of controversy would be unwelcome.

For supporters of China’s system, such extralegal and opaque procedures are understandable. Xiao wouldn’t have been targeted if he hadn’t done something wrong, on this view. China’s unitary governance structure enables offenders to be dealt with efficiently. By contrast, the systems of liberal democratic countries, with their emphasis on separation of powers and defendants’ rights, can sometimes let wrongdoers with clever lawyers evade justice.

The trouble is that, in the absence of transparency and due process, there is no way of verifying whether this trust in the fairness and probity of authorities is justified. Few fortunes amassed during the early years of China’s economic rise can be wholly clean, given the nature of an evolving system: explosive growth; undeveloped rules and legal infrastructure, with gray areas abounding; and public functionaries on meager official salaries yet with control over lucrative assets and business rights.

So in the downfall of any tycoon (and there have been many), a sliver of suspicion will attach to whether this is purely a law-enforcement matter or the result of political machinations. “Red Roulette,” by the Shanghai-born businessman Desmond Shum, provides an insider’s view of this nexus of political power and business opportunity. Shum’s ex-wife, Whitney Duan, is among those to have disappeared into China’s extralegal detention system.

Xiao was a Tiananmen-era student leader who remained loyal to the government and subsequently built a business empire spanning banking, insurance, real estate and raw materials. The trigger for his demise appears to have been concern over systemic financial risks posed by debt-driven expansion. Tomorrow Group was among four private conglomerates singled out by China’s central bank in 2018, along with HNA Group Co., Fosun International Ltd. and China Evergrande Group.

For foreign investors and executives scrutinizing the case, it is worth considering what has changed since Xiao’s disappearance and what has not. At the time, his apparent abduction from the Four Seasons caused fear and controversy in Hong Kong, being seen as one of the most blatant examples of China’s encroachment on the city’s autonomy. Five years on, Beijing has imposed a national security law on the former British colony, enabling the creation of a vast security complex that goes far beyond the isolated incidents that caused such consternation back in 2017. Xiao’s case was a “harbinger of what was to come” in terms of the Communist Party’s jurisdiction over Hong Kong, Kevin Yam, an Australian lawyer who practiced in the city for two decades, said in an interview.

The conventional wisdom once suggested that China would become more transparent and rules-based as time went on, moving closer to Western norms. Instead, Beijing has become more assertive about proclaiming the superiority of its own system. In January, Xi announced a “no limits” partnership with Russia just before its invasion of Ukraine, in an undisguised challenge to the liberal global order. Foreign capital has left China’s markets at an unprecedented pace this year. Hong Kong’s Hang Seng Index, which is open to international investors and has become increasingly dominated by Chinese companies in recent years, is trading at its lowest valuation relative to earnings since the Asian financial crisis in 1998.

It’s hard to see much reason why this elevated risk premium should fall. The rendition of Xiao fits into a pattern under Xi in which the arbitrary exercise of state power by the Communist Party has become more pronounced, frequently to the dismay of overseas investors. This includes a crackdown on technology companies and the outlawing of the for-profit tutoring industry, which wiped out hundreds of billions of dollars of market value.

The case of this fallen billionaire is a reminder of a system that is determined to go its own way.