SinoInsight 1
Xiao Jianhua faces criminal trial
June 9
Xiao Jianhua, the billionaire founder of Tomorrow Group, is set to face criminal charges in Shanghai as early as this June, according to an exclusive report by The Wall Street Journal. Citing people familiar with the matter, the Journal said that the authorities are planning to charge Xiao with illegally collecting public deposits, a crime that can carry a prison sentence of five years or more.
When asked for details about Xiao’s case, his brother Xiao Xinhua told the Journal, “It’s very complicated and full of drama.”
Background: Xiao Jianhua, 50, was “vanished” by the CCP authorities from his luxury suite at the Hong Kong Four Seasons hotel in January 2017. The incident made headlines worldwide.
After Xiao’s detention, the authorities would proceed to take over financial institutions affiliated with Tomorrow Group, most notably Baoshang Bank in Inner Mongolia. Baoshang Bank eventually declared bankruptcy in August 2020, and stakes held by shareholders (including by Tomorrow Group affiliates) before the government takeover were liquidated. In a September 2021 article warning against the capture of leading cadres by interest groups, the Central Commission for Discipline Inspection spotlighted the case of Xue Jining, the Inner Mongolia Banking Regulatory Bureau director and Party secretary who was “surrounded and captured” by “lawbreaking financial groups and Baoshang Bank.”
Xiao Jianhua is widely believed to be the bagman or “white glove” (白手套) of former Politburo Standing Committee member and Jiang Zemin faction number two Zeng Qinghong, as well as other Jiang faction associates and members of the Party elite. In February 2017, or shortly after the authorities “vanished” Xiao, overseas Chinese media exposed him as the investor behind the controversial purchase of the Shandong state-owned power generating company Luneng Group by Zeng Qinghong’s son Zeng Wei and his friend Zhao Junshi in 2006. Then-Shandong Party secretary Zhang Gaoli (a Jiang faction member) and then-State Grid Corporation of China general manager Liu Zhenya were reportedly also involved in the Luneng sale.
Briefly, the Luneng incident broke in January 2007 following a report about the privatization of the SOE by mainland financial magazine Caijing. Caijing reported that 91.6 percent of Luneng’s shares were transferred to two unknown private companies (Beijing Shouda Energy Group and Beijing Guoyuan United) for 3.73 billion yuan (about $478 million), resulting in a loss of more than 70 billion yuan in state-owned assets given that the company’s net assets were valued at 73.805 billion yuan. Caijing also noted that one of the buyers was a “son surnamed Zeng” (曾姓公子); Chinese observers and at least one Western media outlet later revealed the buyers to be Zeng Wei and Zhao Junshi. Luneng was eventually nationalized again in 2008.
Observers of CCP elite politics note that the Caijing exposé of the Luneng deal is linked with factional struggle between the Hu Jintao camp and the Jiang faction. Both factions were looking to settle on a candidate to replace Hu as Party General Secretary ahead of the 17th Party Congress in 2007. Hu had managed to sideline Jiang Zemin’s protégé and former Shanghai Party secretary Chen Liangyu in September 2006, removing him from the running to be the next Party boss.
The Hu camp is believed to be behind the Luneng incident, which blocked Zeng Qinghong from becoming a General Secretary candidate. Zeng had ambitions of becoming Party leader and could have lobbied to do away with the “seven up, eight down” (七上八下) senior official retirement norm that prevented him from staying on as PRC vice president at the 17th Party Congress. The Luneng incident, however, led to Zeng being rebuked by Party elders for failing to control his son and effectively torpedoed any chance he might have had of politicking his way to becoming Party boss.
Ant IPO?
June 9
Bloomberg News reported that PRC financial regulators had begun early stage discussions about allowing Alibaba affiliate Ant Group to revive its initial public offering (IPO). Meanwhile, Reuters reported that Beijing had given Ant Group a “tentative green light” to go ahead with a listing.
Ant Group later wrote on its public WeChat account, “Under the guidance of regulators, we are focused on steadily moving forward with our rectification work and do not have any plan to initiate an IPO.”
OUR TAKE
1. There are two possible and interconnected reasons for why the Xi leadership went after Xiao Jianhua.
Insofar as factional struggle is concerned, Xi Jinping likely went after prominent “white gloves” like Xiao Jianhua and CEFC China Energy chairman Ye Jianming during this second term as a response to the Jiang faction’s “financial coup” in 2015. Targeting Xiao and Ye serves the purpose of “killing the chickens to scare the monkey” (殺鷄儆猴), cutting off influential Party elites from their wealth channels, and helping the Xi camp consolidate its control over the financial sector while weakening the grip of the Jiang faction and other elite interest groups.
Going after “white gloves” also aligns with the Xi leadership’s longstanding goal of defusing the regime’s financial risks. Xiao Jianhua’s activities with Baoshang Bank and other financial institutions reaped profits for himself and his elite patrons while leaving the risk to the CCP regime. The extension of the anti-corruption campaign to the financial sector in 2017 (notably affecting Anbang’s Wu Xiaohui, Wanda Group’s Wang Jianlin, Xiao Jianhua, and Ye Jianming), as well as more recent efforts like the campaign to curb the “disorderly expansion of capital,” “anti-monopoly” actions, and crackdowns on the tech sector (Ant Group, Didi, etc.), the education and training industry, and the gaming industry, are intended by the Xi leadership to derisk the financial sector, shore up regime security, and avert crisis for the CCP.
2. If the Xiao Jianhua case has indeed entered judicial proceedings with him facing criminal charges soon, then the Xi leadership has likely gotten whatever they wanted out from him and does not need to prolong the investigation. The Xi camp could be looking to publicize and resolve the Xiao case before the Beidaihe meeting period (mid-July to mid-August) for maximum intimidation.
Xiao’s criminal trial could also be part of the Xi leadership’s recent move to restore investor confidence and attract much-needed foreign capital by signaling a ceasefire on government crackdowns in key sectors. As we wrote in the June 9 newsletter, the PRC government has been strengthening its control over tech companies through various supervision and control mechanisms (taking equity stakes, appointing “independent” board directors who are likely loyal to Beijing, etc.) as part of “rectification” work to reduce their political influence to “nil,” as former People’s Bank of China adviser Li Daokui claimed. Beijing has likely been doing something similar to financial institutions, particularly those affiliated with Xiao’s Tomorrow Group, over the past couple of years. The CCP would be hoping that foreign investors would correctly interpret what the Xiao Jianhua criminal trial implies and be more willing to pour capital into China again in light of “reduced” political risk; this may be a reason why The Wall Street Journal got the exclusive report. (Foreign investors should not be fooled into thinking that the CCP has “changed”; the CCP remains a Marxist-Leninist organization that adheres to a Party culture of “deceit, perniciousness, struggle” [假惡鬥]).
Further, the Xiao trial could be intended to signal to the Party elite and other “white gloves” who are at large that while Xi Jinping frowns upon their risky wealth-accumulation methods, he does not wish to completely destroy his rivals and other elites who engage in regime-imperiling financial activities if they are willing to correct their ways. If Xiao Jianhua cooperated well with the Xi leadership’s investigation, which currently seems like the case from publicly available information, he could receive a more “lenient” prison sentence of around 10 years. But if Xi is not feeling merciful towards his political enemies or wants to really make an example of Xiao, the latter could be handed a prison sentence of more than 10 years to life in prison; this is less probable because the Xi camp is likely aware that excessive intimidation could backfire in the current environment.
On a related note, the case of CEFC’s Ye Jianming still remains unresolved. The case could be more complex than the Xiao Jianhua one because Ye had closer connections and deeper interests with Zeng Qinghong, former China Huarong Asset Management chairman Lai Xiaomin, and the Jiang faction’s “petroleum gang.” Ye and his company also happen to be linked with President Joe Biden’s son Hunter.
3. News of Ant Group’s supposedly “revived” IPO could be trial balloons by parties with interests in an Ant listing. Those parties could be seizing the opportunity of Beijing easing up on crackdowns to attract foreign capital to pressure the authorities into issuing a clear decision about Ant’s IPOs in Hong Kong and Shanghai.
The Xi leadership could eventually allow Ant Group to revive its IPO if it believes that it has sufficient controls put in place to avoid the “disorderly expansion of capital” and has adequately neutered the company’s political influence.
SinoInsight 2
Vice governor reshuffles
June 2
Yu Jian (age 55), Sun Xuetao (56), and Liu Changgen (66) resigned as vice governors of Gansu Province.
June 9
1. Wang Shujian (60), Ji Binchang (59), Fu Mingxian (58), Wang Xinfu (52), and Li Meng (55) resigned as vice governors of Shandong Province.
2. Luo Wen (58) and Chen Wei (57) resigned as vice governors of Sichuan Province.
Propaganda apparatus reshuffles
June 9
Xu Lin (59), director of the State Council Information Office, was appointed director of the National Radio and Television Administration. Xu replaced the retiring Nie Chenxi (65).
Political and legal affairs apparatus reshuffles
June 2
1. Liu Changgen (56), vice governor of Gansu Province, was appointed secretary of the Gansu Provincial Political and Legal Affairs Commission. Liu replaced Hu Zhuo (59), who was previously appointed deputy director of the Gansu Provincial People’s Congress Standing Committee in January 2022.
2. Yu Jian (55), director of the Gansu Provincial Public Security Bureau, was removed from office. Yu had previously transferred to Heilongjiang Province at the end of May 2022, but Li Yi, director of the Heilongjiang Provincial Public Security Bureau, is still in office.
3. Huang Ruixue (50), Ministry of Public Security General Office Party Committee secretary and director, was appointed director of the Gansu Provincial Public Security Bureau.
4. Li Meng (55), vice governor of Shandong Province, was promoted to secretary of the Shandong Provincial Political and Legal Affairs Commission. Li replaced Lin Fenghai (60), who was appointed vice chairman of the Shandong Provincial Political Consultative Conference in January 2022.
June 10
1. Heng Xiaofan (55), director of the Inner Mongolia Autonomous Region Public Security Bureau, was transferred to Tianjin Public Security Bureau to serve as Party secretary and director.
2. Li Mingqing (57), Chongqing Municipal deputy Party secretary, was jointly appointed secretary of the municipal Political and Legal Affairs Commission. Li replaced Liu Qiang, who was appointed as a deputy director of the Standing Committee of the Chongqing Municipal People’s Congress this January.
OUR TAKE
The latest round of personnel reshuffles follows the “formula” (see here and here for examples) that Xi Jinping largely stuck with over the past decade to avoid factional problems and ensure that the new appointees obey Party Central. For instance, Xi is known to promote officials from the government system to the Party system, favor “technocrats” with weak factional backgrounds, and elevate local officials whose career progression was slow during the Jiang faction’s era of dominance (1997 to 2012).
Vice governors
Of the 10 vice governors that resigned, three (Liu Changgen, Wang Shujian, Ji Binchang) are at or near retirement age and were earlier appointed to “second-line” positions in their provincial NPC or CPPCC. Six of the 10 (Luo Wen, Chen Wei, Sun Xuetao, Fu Mingxian, Wang Xinfu, Li Meng) were promoted to important provincial Party positions, and one (Yu Jian) moved to another province.
Sichuan
Luo Wen
Luo Wen is a technocrat who spent 24 years in the Ministry of Electronics Industry and the Ministry of Industry and Information Technology (July 1985 to Jan. 2019), eventually becoming deputy minister of industry and information technology (July 2017 to Jan. 2019).
After spending a little over a year as deputy director of the National Development and Reform Commission (Jan. 2019 to March 2020, Luo was “parachuted” into Sichuan Province to serve as executive vice governor and a Standing Committee member of the Sichuan Provincial Party Committee (March 2020 to June 2022). Luo Wen’s promotion to Sichuan deputy Party secretary on May 31 suggests that he is on track to take over as governor of Sichuan in 2022.
Huang Qiang (59), the current Sichuan governor, is also a technocrat. He previously served nearly 21 years in the state aviation industry and the Commission for Science, Technology and Industry for National Defense (July 1983 to Jan. 2014), rising to the bureau rank. Huang was rapidly promoted during Xi’s decade in office and “parachuted” into the provinces (Gansu, Henan, Sichuan), eventually becoming a ministerial-rank official. Huang’s career trajectory suggests that he has room for further progression, and could later be transferred to another province to serve as provincial Party secretary.
Chen Wei
Chen Wei, a local Sichuan official, served in the province’s finance department for nearly 35 years (July 1986 to March 2021) and eventually became finance department head. He was then promoted to Sichuan vice governor (March 2021 to June 2022) and was promoted to secretary-general of the Sichuan Provincial Party Committee on May 31.
Gansu
Sun Xuetao
Sun Xuetao is a technocrat who spent 20 years in the Ministry of Water Resources (June 1991 to July 2011) and eventually became director of the ministry’s water resources department (director-level rank). After that, he was transferred to Gansu, where he rose to the position of vice governor (June 2020 to June 2022). Sun was promoted to head of the Gansu Provincial United Front Work Department on May 31.
Shandong
Fu Mingxian
Fu Mingxian, a local Shandong official, served in the cities of Qingdao, Jiaozhou, and Jining for nearly 23 years (Aug. 1989 to June 2022), eventually becoming Shandong vice governor and secretary of the Yantai Municipal Party Committee (Feb. 2021 to June 2022). Fu was promoted to Standing Committee member of the Shandong Provincial Party Committee on June 2.
Wang Xinfu
Publicly available information about Wang Xinfu is scarce. He spent the bulk of his career in the Central Propaganda Department, and rose to become director of the Department’s theory bureau. In February 2021, Wang was “parachuted” into Shandong to serve as vice governor (vice ministerial level). In April 2022, he was transferred to Guangxi and promoted to head of the provincial united front work department.
Li Meng
Li Meng is a local Shandong official. He previously served in various appointments at the Anhui Hefei University of Technology (July 1994 to Sept. 2003), Anhui Provincial Party School (Sept. 2003 to Dec. 2006), Wuhu Municipal Party Committee (Dec. 2006 to Feb. 2011), Anhui anti-corruption agency (Feb. 2011 to Aug. 2016), and the Tongling Municipal Party Committee (Dec. 2019 to April 2021).
Li was transferred to Shandong to serve as secretary of the Dezhou Municipal Party Committee (Dec. 2019 to April 2021) and was promoted to Shandong vice governor barely two years later (May 2021 to June 2022). Li was promoted to secretary of the Shandong Provincial Political and Legal Affairs Commission on June 2.
Propaganda apparatus
We wrote in the June 9 edition of the newsletter that recent reshuffles at state mouthpiece Xinhua and the Central Propaganda Department are part of Xi Jinping’s effort to tighten his grip over the propaganda apparatus before the 20th Party Congress. The appointment of Xu Lin, a Xi ally, as director of National Radio and Television Administration is part of Xi’s recent effort to consolidate his control over the propaganda apparatus.
Xu Lin
Xu Lin spent his formative years as an official in Shanghai (Sept. 1984 to June 2015). When Xi Jinping was Shanghai Party secretary, Xu was a Standing Committee member of the Shanghai Municipal Party Committee and director of the municipal agriculture committee. Before moving to the central government, Xu headed the Shanghai provincial propaganda department (May 2013 to June 2015).
In the central government, Xu served as deputy director of the Office of the Leading Group of the Cyberspace Administration of China (June 2015 to June 2016); Xi established the Leading Group in February 2014. Xi likely put Xu in the Cyberspace Administration of China to keep an eye on and rein in then-CAC Leading Group director Lu Wei, who is a Jiang faction member.
In June 2016, Xu Lin replaced Lu Wei as director of the Cyberspace Administration of China Leading Group and was promoted to deputy director of the Central Propaganda Department. Lu was formally investigated in November 2017. In April 2018, the Cyberspace Administration of China Leading Group was upgraded to a commission as part of state and Party institutional reforms. Four months later, Xu was transferred to the State Council Information Office, and was recently appointed director of National Radio and Television Administration.
Political and legal affairs apparatus
Since April this year, the provincial Political and Legal Affairs Commission (PLAC) secretaries of at least seven provinces (Heilongjiang, Shanghai, Shandong, Hainan, Chongqing, Gansu, Qinghai) and the provincial Public Security Bureau (PSB) heads of at least 11 provinces (Tianjin, Gansu, Hebei, Shanxi, Jiangsu, Anhui, Hunan, Guizhou, Liaoning, Jilin, Guangxi) were reshuffled. Currently, the PLAC secretary position is vacant in three provinces (Sichuan, Jiangxi, Ningxia), and one province does not have a PSB director (Inner Mongolia).
Of the seven PLAC secretaries who were recently reshuffled, only one had previously served as a PLAC secretary in a prefecture-level city for more than four year. The rest have no experience working in the political and legal affairs system. Five of the seven new PLAC secretaries are natives to the province that they are serving in.
Of the 11 new PSB directors, three were not from the political and legal affairs system prior to their appointment and seven are career public security or state security officials. Eight of the 11 were transferred in from another area, two were “parachuted” in from the Ministry of Public Security, and the one PSB director (from Hunan) who was not transferred in from elsewhere has no experience working in the political and legal affairs apparatus. Also, two of the new PSB directors, Heng Xiaofan in the Tianjin PSB and Li Yaoguang in the Jiangsu PSB, were former deputies of Wang Xiaohong, the current MPS Party secretary and executive vice minister of public security, when they were serving in the Beijing Municipal PSB.
At the time of writing, five of the 30 provincial PSB directors are former deputies of Wang Xiaohong. Aside from Heng Xiaofan and Li Yaoguang, the other three are Guangdong provincial PSB director Wang Zhizhong (Wang Xiaohong’s deputy at the MPS Special Service Bureau), Beijing Municipal PSB director Qi Yanjun (Wang Xiaohong’s deputy when he was at the Beijing Municipal PSB), and Guangxi provincial PSB director Xu Xianhui (Wang Xiaohong’s deputy when he was Henan provincial PSB director.
Based on our research, Xi Jinping will reshuffle the PSB chiefs of at least 11 provinces (Hainan, Jiangxi, Shandong, Yunnan, Ningxia, Shanghai, Henan, Hubei, Sichuan, Tibet, Inner Mongolia) in the months ahead. Xi is likely looking to relocate officials to ensure that they do not stay in one area for too long and either engage in or establish local power networks (“judicial mafia,” “political gangs,” etc.). Xi could also be looking to move problematic officials away from their base of operations to facilitate investigations into them.
Getting officials outside the political and legal affairs apparatus into key leadership positions within the apparatus means that they are more likely to be obedient and loyal to the Xi leadership because Xi Jinping is their direct political patron. In contrast, career PLAC officials are politically risky because they could potentially owe their promotions to elements in the apparatus who are still loyal to the Jiang faction. The downside to Xi’s personnel arrangement is that the leading cadres who lack political and legal affairs experience will likely struggle to deal with serious social instability issues and could encounter problems with inter-agency resistance from below. On the upside for Xi, his factional rivals will find it hard to muster their remaining influence in the political and legal affairs apparatus to carry out “anti-Xi” operations before the 20th Party Congress.
