How Xiao Jianhua Angered President Xi

Welcome to Foreign Policy’s China Brief.

The highlights this week: What the kidnapping and trial of a former billionaire tells us about China’s ultrawealthy, a rare joint press conference by U.S. and U.K. spy chiefs warns of coordinated Chinese espionage on a grand scale, and why China’s poorest citizens will feel the brunt of local government funding shortages.

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Five years after he was kidnapped from the Four Seasons hotel in Hong Kong by a state security hit team who bundled him out of the building in a wheelchair, former billionaire Xiao Jianhua is on trial for unknown charges. Back in 2020, Xiao’s firms were broken up and divided as spoils. The 50-year-old once lived a life of glamor and luxury, reportedly surrounded by an all-female bodyguard squad. So just how did he get there—and here?

China’s rich are often compared to fattened geese: The party both feeds them—through connections—and eventually consumes them. But some, like Xiao, are a very different species. Parrots, perhaps: clever, piratical, and with the dangerous potential to reveal secrets.

Xiao’s initial wealth came from business deals when he was a smart graduate of a top university, lacking family connections but armed with an understanding of new technologies like computers as well an ease in dealing with foreign firms. By the 2000s, however, he was an elite bagman for the richest and most connected families in the country, steering and protecting their money. Under the Maoist system, those families enjoyed lives of relative privilege, with access to the cozy jobs that a planned economy could provide. But as China started getting rich, they needed to manage the new and unfamiliar worlds of high finance and international investment. Xiao was half-fixer, half-potential scapegoat, appeasing high officials and working political connections on behalf of the wealthy.

Though Xiao had a stake in Ping An Insurance, a giant conglomerate that former Premier Wen Jiabao’s family was heavily invested in, his real moneymaker was the Tomorrow Group, which he personally headed. His business as an investor and fixer for the powerful made him ultrarich; by the mid-2010s he was worth somewhere between $2 billion and $6 billion—estimating just where his wealth was, and how much of it he truly controlled, was a tough business.

But connected billionaires like Xiao were in danger when President Xi Jinping’s purges began in 2013, because they had ties to multiple top figures. These ties rendered them vulnerable as Xi carved his way through his political opposition. Xiao’s clients included Xi’s relatives. But that didn’t protect him—if anything, it put him in more danger.

Xi himself is the son of one of the People’s Republic of China’s founding figures, and his family is immensely wealthy, as a series of Bloomberg and New York Times stories established in 2012. Xi didn’t appear to have a problem with his family’s fortune, but he definitely had a problem with people talking about it; the stories prompted years of attacks by the state on foreign reporters. Not only did Xiao help the Xi clan diversify its wealth, but he even talked to the Times about it—a bizarre and risky violation of the usual omertà around the most powerful.

Xiao was certainly aware of the precariousness of his position, spending most of his time outside of mainland China once Xi came to power. He had acquired Canadian citizenship in 2008, as well as a diplomatic passport from Antigua and Barbuda just weeks before he was kidnapped. (Caribbean island citizenship, though not residence, is a popular choice for China’s wealthy.)

Other billionaires have also vanished, whether temporarily, like Fosun head Guo Guangchang in 2015, or permanently, like Wu Xiaohui, head of another giant insurance firm who vanished for a year in 2017 before being tried on fraud charges. (Wu had married the granddaughter of former Chinese leader Deng Xiaoping—and divorced her in 2015, which may have been his big mistake.)

But like many of the Chinese rich who head abroad, Xiao was unable to break away from Beijing entirely. He made his base in Hong Kong—then still theoretically under its own legal system, but deeply vulnerable to Chinese security. And as a result, he became one of the numerous fugitives and dissidents rendered back to the mainland by state security.

All this begs the question: Why hold the trial now? Of course, there’s no limit on how long you can disappear someone; take Wen family fixer Whitney Duan, who vanished at around the same time as Xiao and hasn’t been seen save for a warning phone call to her husband since. But others have moved from detention to trial much more rapidly; the average span is a year or two.

The trial may be a display of Xi’s power as he prepares for the 20th Party Congress in the fall, where his power will be formally solidified for an unprecedented third term. But it may also be that the negotiations around Xiao simply took an unusually long time to work out because of just how connected he was. He went into detention, however unwillingly, with much more leverage than the average victim of the system, thanks to his knowledge of where the money is and his potential to testify against others.

And while the Chinese detention system is brutal, he’s probably not in the torturable class; former officials and the ultrarich get treated with a relatively light hand. Just what he gets charged with, and which former officials are hung out to dry for being linked to him, will be revealing.

Joint spy warning. In a rare joint press conference—somewhat overshadowed by chaos in British politics—the heads of MI5, Britain’s domestic intelligence service, and the FBI warned of huge Chinese espionage efforts. China is “engaging in a coordinated campaign on a grand scale,” said MI5 Director-General Ken McCallum. Both agencies said they had massively stepped up investigations into Chinese activity in the last few years.

It’s true that China engages in a lot of espionage and hacking, especially for commercial purposes. But what’s less clear is whether there’s been an increase in such activity, which has been conducted for decades, or in the volume of U.S. and U.K. interest and response to it. The FBI’s record on China over the last few years is bad, with the “China Initiative” dissolved after cases against ethnically Chinese scientists prosecuted on scanty evidence fell apart in court. This week’s press conference feels more like a reaction to the Western-Chinese relationship hitting a nadir than to an escalation in espionage efforts by China. But the United Kingdom overtly signing on to the American approach is new, and it’s a sign of how badly relations have crumbled since the “golden era” of Chinese-U.K. relations was promised in the distant year of 2015.

New variants and shutdowns. The BA.5 omicron variant of the COVID-19 virus has officially arrived in China, prompting fresh restrictions in several cities, including the metropolis of Xian (which has significant lockdown experience). Xi gave another rousing endorsement of the zero-COVID policy on a recent Wuhan trip, condemning talk of herd immunity by stressing China’s scientific self-reliance. Xi’s speech was another hint that using the more effective mRNA vaccines created in the West—which might offer China a route out of permanent stagnation and closure—won’t be happening any time soon. Shanghai’s numbers, meanwhile, are creeping back up, leaving residents who endured the draconian two-month lockdown nervous.

One-child trafficking. A rural Guangxi couple who had their seventh child seized from them by the government in the 1990s have had their petition to learn his whereabouts rejected. The case is now blowing up online. While forced abortion and sterilization were the main tools used by the state in the one-child era, the government also took children from their parents—a pattern now being repeated in residential schools in Xinjiang, sometimes directly tied to child trafficking. The Chinese orphanage and child welfare system was—and likely remains—rife with physical and sexual abuse, which Chinese media is largely unable to cover.

Local government funding in crisis. Budget crises are hitting Chinese local governments across the country, linked to the country’s ongoing real estate crunch and the pandemic economy. Lockdowns have seriously affected economic growth, and local governments—which lost the bulk of their once plentiful direct revenue to the central government in the 1990s—have long been dependent on land sales to make up the losses. But those revenues have fallen sharply, down 27 percent in the first quarter of the year alone.

Budgetary problems have been evident for a while now, especially since the funding support given to manage lockdowns in 2020 ceased. When I spoke to political scientist Victor Shih last November about this, he noted that governments were resorting to seizing increasingly marginal land—and forcibly relocating the residents—as well as increasing the fiscal burdens on the poor.

Measures now include cutting official salaries—paradoxically, at the very time when economic uncertainty is making the “iron rice bowl” of official jobs even more attractive to young Chinese. Those salary cuts may also end up being passed on to the most vulnerable as officials squeeze those underneath them to try to keep themselves afloat. A combination of party purges and economic slowdown has taken out some of the daily bribes and favors paid for access by the middle classes that once bolstered incomes, but little has been done to curb extortion of the poorest.

Data for sale. Reports of a massive data leak, offered for sale by a hacker for $200,000, are being censored on the Chinese internet. The leak is said—by the vendor—to include the private data of a billion Chinese citizens, drawn from Shanghai police databases. I’m skeptical; while there’s no data privacy from the state in China, a small part of the database has been verified, and data practices inside the government are frequently poor, this sounds like a case of exaggeration (and possibly a poor grasp of big numbers) by the hacker.