Hong Kong’s separate role as a distinct special region of China, with its own constitution, currency and courts, appears to be under attack again. That’s judging by the apparent abduction of a Chinese billionaire from within its borders.
It is a worry for investors, who already contend with operational and economic uncertainty when putting money to work in China and Hong Kong. Now they must fret that any executive may suddenly vanish into the murky Chinese legal system, which operates behind closed doors in a way that is far removed from the “rule of law” so prized in Hong Kong.
The businessman, Xiao Jianhua, was taken by Chinese police from his apartment in the Four Seasons Hotel late last week, according to The New York Times, mysteriously taken across the border, and is in police custody in China. He is “assisting investigations” into stock-market turmoil in 2015 as well as a case involving a former spy, according to the South China Morning Post.
The abduction, if that’s what it is, will send a shiver down the spine of many a Chinese executive. The crackdown on corruption launched by Chinese President Xi Jinping — both a legitimate cleanup and an effort to purge Xi’s enemies, according to China watchers — can bring down any politician at any time. The business connections that have helped or even bribed them go down, too.
Such affairs are shrouded in mystery, and ultimately tend to remain so. But the increase in their number indicates greater blurring of the lines between Hong Kong and China. The territory has special status for 50 years as a separate entity within China since its 1997 handover from the British. Macau, the only part of China to allow casino gambling, has similar status since the Portuguese gave it back at the end of 1999.
Hong Kongers worry their freedoms are being eroded. That has given rise to the “localize” movement whose members at times advocate independence, as I explained last September. Although Hong Kong’s government is stacked with pro-Beijing loyalists, pro-democracy forces hold enough posts to effectively block changes to Hong Kong’s law, which results in the government basically doing nothing almost all the time.
The Chinese police are not allowed to operate inside Hong Kong, under the Basic Law, Hong Kong’s constitution. The Hong Kong police have confirmed that Xiao entered mainland China on Friday via the Hong Kong border — the means unknown. With his disappearance first reported to police, then withdrawn by his family, the case bears a strong resemblance to that involving the bookseller Lee Bo.
At the start of 2016, Lee’s wife first reported him missing, then withdrew that complaint, with Lee later saying he “voluntarily” entered China. He somehow crossed the border without his passport or Hong Kong identification card. Four of his colleagues at a bookstore that published occasionally scurrilous books about China’s leadership also ended up in China via various sketchily outlined means.
Xiao, 46, is at the heart of the latest scandal. He is the founder of the Beijing-based Tomorrow Group, typically described as a “sprawling” holding company with investments in banking, coal, cement, insurance and real estate, mainly industries dominated by state-owned companies. Born to a poor family in northeastern Shandong Province, he got his start in business re-selling Dell and IBM computers.
He is worth $6.0 billion, according to the Hurun Global Rich List, which ranks him No. 32 on the rungs of China’s richest people. Somehow he came close to doubling his net worth between 2015 and 2016.
Xiao has benefited in the past from powerful political connections. He holds an interesting spot in history — he was the head of the official student union at Peking University in 1989. That’s when student protests broke down into bloodshed as the Chinese military dispersed crowds violently in and around Tiananmen Square. Amnesty International says up to 1,000 people died.
Xiao attempted to represent the students to government at first, then shifted his position to agree with administrators that the student protests had grown out of hand. He reportedly attempted to curtail the protests — actions that benefitted him as soon as he graduated.
He has done business, according to The New York Times, with the family of President Xi Jinping, with a company that he co-founded paying $2.4 billion to buy shares held by Xi’s sister and brother-in-law. He has also dealt with the son-in-law of Jia Qinglin, then a member of China’s most-powerful political body, the Politburo Standing Committee that serves as the Chinese cabinet. He even helped finance, with the son-in-law of a former chief of China’s central bank, the purchase of Digital Domain, a visual-effects studio started by film director James Cameron.
His abduction is therefore tinged with irony. The Tiananmen Square demonstrations were sparked by concern over widespread corruption in the government, and its ties to big business. Xiao appears to have benefited from the Chinese system of connections, but may now have fallen victim to President Xi’s crackdown on corruption that has become even more endemic since 1989.
It’s unclear how exactly he is “assisting” inquiries, but his holdings are broad enough to have far-reaching impact in China. There were rumors in 2014 that he had fled to Hong Kong to avoid a mainland investigation ordered by President Xi. But Xiao denied that via a spokesperson, and his company has said this time around that he is “recuperating” abroad — the Chinese word making it clear that means outside China.
Xiao was “persuaded” rather than forced to cooperate with mainland agents, one source told the SCMP, which fits with the modus operandi in other cases. Whether through threats to their business or family, the Chinese authorities seem to get their way with those they detain.
Xiao has hedged his bets by acquiring Canadian citizenship, real estate in the United States and Canada, and an Antiguan diplomatic passport to boot, according to the Times. He also started living in Hong Kong for much of the time, doing business out of the Four Seasons, where he was attended by a squad of female bodyguards.
Foreign citizenship may not do him much good. The bookseller, Lee, was a British citizen,- and said that he gave that up during the saga of his cross-border detention. He admitted he was “assisting” police but said in an interview with the mainland television channel Phoenix that he went back to China to help them “voluntarily.”
One of Lee’s colleagues, Lam Wing-kee, had a very different version of events. He said he had been blindfolded, kept in a Chinese cell for months, and refused to return to China has he was meant to do. His abduction “violated the rights of Hong Kong people,” he said.