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China Is Dismantling the Empire of a Vanished Tycoon Marked as ‘Tiger’ by Xi Jinping

Chinese President Xi Jinping .

Chinese President Xi Jinping .

On Friday, two regulators announced coordinated moves to seize companies worth hundreds of billions of dollars tied to Tomorrow Group, the umbrella company that Xiao controlled for more than two decades.

Xiao Jianhua was once a trusted financier to China’s ruling elite who came to represent an era of unbridled capitalism.

But three years ago, he was snatched from a Hong Kong luxury hotel and disappeared into Chinese custody. Now the empire he built is being dismantled by authorities in Beijing as China sends a strong message that its era of debt-fueled excess is over.

On Friday, two regulators announced coordinated moves to seize companies worth hundreds of billions of dollars tied to Tomorrow Group, the umbrella company that Xiao controlled for more than two decades.

China’s banking and insurance regulator said it had taken over four insurers and two trust firms connected to Tomorrow Group, while the securities regulator said it had seized control of two securities firms and a futures company, accusing the businesses of providing misleading information about their shareholders and controller.

In staging the takeovers, China’s top leadership is bringing to heel a key figure from a time of freewheeling finance in which wealthy executives used their political connections to build huge companies that scooped up trophy assets at home and abroad. But the move also risks a public showdown with a tycoon who knows about the secret wealth of people in China’s ruling class.

In many ways, the fate of Xiao and his empire was sealed in the early hours of Jan. 27, 2017, when he was whisked out of the Four Seasons Hotel in Hong Kong in a wheelchair by a dozen men and taken into police custody in mainland China.

Since then, there has been no official word about his whereabouts, though people familiar with the situation said that he was under house arrest. On Saturday, Tomorrow Group confirmed for the first time that Xiao was on the mainland, saying that he was cooperating with the government as it restructured 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 semi-autonomous territory’s business community was beyond the reach of Chinese authorities. It also sent a chill through China’s political class, already set on edge by the tough anti-corruption campaign waged by Xi Jinping, the country’s leader.

For years, Xiao’s Tomorrow Group and its constellation of companies have been a source of speculation and mystery because the ultimate ownership was hidden behind layers of shell companies.

China is trying to identify fault lines in a weak economy that survived for decades on a borrowing binge. In recent weeks, the banking regulator has purged tycoons and other shareholders whom it accused of using banks and insurance companies as personal ATMs.

Along with Xiao, Beijing has also targeted Wu Xiaohui, who married a granddaughter of former Chinese leader Deng Xiaoping, rose to prominence and bought the Waldorf Astoria Hotel. Wu found himself in the government’s crosshairs in 2018 when his insurance firm Anbang Group was seized. He later pleaded guilty to defrauding investors and was sentenced to 18 years in prison.

Xiao and the business dealings he undertook — most of them hidden within the Russian-doll-like layers of Tomorrow Group — illustrated the cozy ties between China’s business world and its political elite.

From humble beginnings, Xiao made his way to the prestigious Peking University, an institution that would prove critical to his entry into the world of finance. There, he headed the official student union at a time of political upheaval, as fellow classmates crowded Tiananmen Square in Beijing to demand democracy in 1989.

Xiao was said to have kept his head down then, at one point even working with the university to try to de-escalate tensions with the students, before the army crushed the movement by killing hundreds of people or more.

After Xiao graduated and entered the realm of finance, he received an investment from his state-backed alma mater for an early business venture. Around the same time, he set up Tomorrow Group.

He used the conglomerate to help finance transactions for the political elite and wealthy Chinese who preferred to stay in the shadows. He helped to facilitate partnerships with Xi’s older sister as well as with the son-in-law of Jia Qinglin, who was then a member of the party’s highest decision-making body.

As Xiao built up his firm, China embarked on its greatest period of economic expansion and privatization in the 1990s and 2000s.

Under the umbrella of Tomorrow Group, Xiao amassed stakes in companies that reached all corners of China’s economy, from tightly controlled industries like banking and insurance to rare metals, coal and property. The conglomerate had money in some of China’s biggest firms, including the insurance giant Ping An and banks like Harbin Bank, Industrial Bank and Huaxia Bank.

Huaxia Life, the insurance arm of Huaxia Bank, was among the companies seized Friday. Along the way, Xiao became rich — with a fortune estimated to be worth as much as $5.8 billion. After Xi became China’s top leader in 2012, he promised to wage an anti-corruption war against both “tigers and flies.” Xiao was marked as a tiger.

Eventually, Tomorrow Group became so big that it threatened the stability of China’s financial system. The most prominent example was its shareholding in Baoshang Bank, which it used to help fund dozens of companies.

The loans that Baoshang extended to Tomorrow Group companies were kept off its books until recently. Last year, it emerged that the bank was on the brink of bankruptcy. Authorities stepped in, marking the first time in two decades that the government had taken over a bank.

Trillions of dollars of debt lie just beneath the surface of China’s financial system, much of it off the books in transactions undertaken by the largest shareholders of banks like Baoshang. Two other big banks failed last year and had to be bailed out. Many experts fear that more than a few other banks are ticking time bombs.

In its statement Saturday, Tomorrow Group expressed confidence about its future, despite the takeovers.

“After three years of bumpy roads, the faith is still there,” it said. “We also believe that all efforts will be rewarded, and Tomorrow Group will get a fair, just and promised outcome.”

Alexandra Stevenson c.2020 The New York Times Company