February 6, 2017 11:21 am JST
Minxin Pei

Chinese tycoon's disappearance foreshadows showdown in Beijing

Xiao Jianhua's abduction deals body blow to anti-Xi faction

Billionaire Xiao Jianhua reads a book outside the International Finance Centre in Hong Kong in December 2013. He was apparently taken from a hotel room in the city by mainland Chinese police on Jan. 27. © AP Photo/Next Magazine

In appearance, newly minted Chinese tycoons bear no resemblance to fattened geese. In reality, their ultimate fate may be little different. Unprotected by the rule of law, Chinese tycoons -- and their wealth -- are easy prey in a one-party state.

The latest incident demonstrating the precariousness of China's super-rich occurred in the dead of night on Jan. 27, the eve of the Year of Rooster. Six Chinese security agents abducted 46-year-old magnate Xiao Jianhua from his luxurious Four Seasons serviced apartment in Hong Kong.

Xiao is ranked 32nd on China's list of richest individuals and has a reported net worth of at least $6 billion. The source of his fortune is the Tomorrow Group, a sprawling conglomerate with controlling interests in four listed companies and significant stakes in seven other listed firms. Its business empire spans banking, insurance, technology and mining.

Speculation began to swirl immediately after Xiao's disappearance. The sheer brazenness of the abduction recalls a similar incident in December 2015, when Chinese security agents seized a book publisher -- who holds a British passport -- in Hong Kong and transported him to China.

Legally, Chinese security agents are not allowed to operate in Hong Kong, let alone kidnap a foreign citizen in the former British colony (Xiao holds a Canadian passport and, under Chinese law, is no longer a Chinese citizen.) Bundling up a well-protected foreign national and springing him across the border into China is a lawless act. In addition, Xiao's previous business dealings with some politically influential mainland Chinese only reinforce the suspicion that he is a pawn in the vicious power struggle raging at the top of the Chinese leadership.

It is unlikely that the abduction was a rogue operation authorized by low-level Chinese officials; the most plausible explanation is that Xiao has intimate knowledge of business transactions involving top Chinese leaders and their families. Such information, if obtained by rival factions in Beijing, could become political dynamite on the eve of the Communist Party's 19th congress, scheduled for later this year.

Factional battles

Power struggles at the top typically escalate in the run-up to party congresses. In February 2012, the year of the last party congress, China was rocked by the news that Wang Lijun, a former henchman of Bo Xilai's who was police chief of Chongqing, turned against his patron and sought political asylum at the U.S. consulate in Chengdu. It was this incident that ultimately brought down Bo, who was at that time jockeying for a position on the Politburo Standing Committee, the party's top decision-making body.

Xiao Jianhua has not been seen in public since Jan. 27. © AP Photo/Next Magazine

Xiao's abduction suggests that a similar contest for political dominance is being waged in Beijing. The stakes at the 19th party congress could not be greater for President Xi Jinping. There is speculation that he may end the party's practice -- adopted in the internal upheaval that followed the 1989 Tiananmen Square crackdown -- of picking a successor ahead of the retirement of the top leader, thus making it possible for him to extend his term beyond 2022. The informal age limit on Politburo members may also be scrapped so that Xi's most important ally, Wang Qishan, 68, can continue to serve on the standing committee. Needless to say, should he be able to elevate a large number of his supporters, Xi will gain complete dominance of the Politburo.

For Xi's foes, whoever they are, the president's total supremacy in the coming years is unthinkable. The 19th congress is their last chance to preserve some form of collective leadership and prevent the return of a Mao-like leader.

In this last-ditch fight for survival, Xiao becomes a critical pawn. If he has information that can be used against Xi, whose family members have done business with Xiao, the tycoon could be coerced into undermining Xi's credibility, especially since the Chinese leader's record in the last four years is built largely on his anti-corruption campaign.

Should Xiao possess direct knowledge of shady business deals involving Xi's political foes, his arrest would send a chilling message. It is easy to envision Xiao singing like a canary in one of the detention centers run by the party's anti-corruption investigators, a possibility that would provide powerful ammunition against Xi's enemies.

If the above analysis makes sense, Xiao could well spend some time "assisting a judicial investigation," to use the official parlance, at a detention facility somewhere in China. In the meantime, one can also confidently bet that his disappearance has made those attempting to block Xi's plans for the 19th party congress even more vulnerable.

Collateral damage

Two outcomes are equally likely. Should the ringleaders of this faction continue to resist, the information provided by Xiao will almost certainly be used against them, and we should expect to see one or two "mega-tigers" -- incumbent or retired top leaders -- fall in disgrace. If members of the rival faction get the message and surrender, then Xi would have won the war without firing a shot.

There is, of course, the potential of serious collateral damage in the internecine warfare inside the party. One obvious victim is the status of Hong Kong as an independent judicial entity. Kidnapping a book publisher may be defended as a one-off mistake, but dispatching security agents to abduct a tycoon is the latest confirmation of the demise of the "one-country, two-system" model.

Xiao's disappearance must have also shattered any sense of security -- no matter how false -- among China's super-rich. Like Xiao, they have developed extensive and dense business ties with top Chinese leaders and their families, thinking that such a web of overlapping interests would provide a measure of protection. But today, as they decipher the implications of Xiao's abduction, most of them must realize that there is no such thing as honor and loyalty in an authoritarian crony capitalist system.

The mistake tycoons such as Xiao have made is to assume that rulers in a one-party state and crony capitalists are in an equal symbiotic relationship -- one cannot survive or prosper without the other. Little do they understand that tycoons in China are no more than fattened geese and can be slaughtered whenever it suits the political interests of their rulers.

Minxin Pei is a professor of government at Claremont McKenna College and the author of "China's Crony Capitalism" (2016).

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