The mystery surrounding a politically-connected Chinese billionaire’s sudden removal from a hotel in Hong Kong — and China’s silence about the case — is perpetuating a state of fear among investors and businesses, analysts say.

It is still very difficult to say with any certainty why Xiao Jianhua was suddenly seized from the Four Seasons Hotel late last month and taken to China. But his case highlights both the necessity of having political connections when doing business in China and the risks that go hand in hand with such ties.

Political ties

Xiao is the head of a holding company called Tomorrow Group, which has stakes in real-estate, insurance, coal and cement firms. His rise to a position of influence began early on when he was admitted to China’s prestigious Peking University at the age of 14. During China’s pro-democracy demonstrations in 1989, he was loyal to the party where he served as head of an official student organization.

After his graduation in 1990, Xiao gradually rose to prominence and in more recent years has served as a banker for China’s politically connected and wealthy families. In 2014, Xiao told The New York Times that he helped the family of Chinese President Xi Jinping dispose of their assets.

Xiao’s company, however, in that same year denied that political connections were the key to his company’s success, instead arguing that they merely followed Warren Buffet’s value-investing strategy. That statement was made in a rebuttal to The New York Times story on the billionaire.

Crucial time

His rendition from Hong Kong, as some reports have described, comes at a crucial time. His disappearance occurred just months ahead of a once in five-year power reshuffle in China that is seen as crucial for President Xi to solidify his power. Because of that, some have seen his removal from Hong Kong as a political move.

“He’s a rich guy, he stays in Hong Kong. He’s very well-connected, very mysterious and people always want to understand him more because they know he is well connected with Chinese government officials,” said one venture capitalist who did not want to be identified because of the sensitive nature of this story. 

The source added that while many things are unclear, it is clear the move was politically motivated.

In China, “money and politics are always linked with each other. They interfere and influence each other,” the source said.

Chinese authorities have yet to clearly state where Xiao is or why he was scurried away from his de facto headquarters in Hong Kong (his company is based in Beijing), and that is feeding speculation about his disappearance.

Some have said he was previously free to speak with family and friends and was in Beijing, but in recent days, even that connection has been cut off. Earlier this week, The New York Times reported that members of his company have been barred from leaving the country.

Given the upcoming Communist Party power reshuffle, some have speculated that factions opposing President Xi were behind the move, while others suggest Xi himself stepped in to minimize any possible damage.

But, without any official comment on the matter, it has been difficult to draw any clear conclusions.

“No matter which [political] faction is trying to use him to weaken the other rival faction, there will be a slew of many others who will be involved or implicated. His arrest won’t be the end of the story,” says one political scientist based in Hong Kong. “The more people involved, the more developments and possibilities there will be.”

Environmental risks

Xiao is not alone, nor are his circumstances entirely new. Unlike most, however, he has amassed a large amount of wealth. According to the Hunrun Report, which tracks the wealth of Chinese billionaires, Xiao has an estimated worth of about $6 billion. 

Economists note it is difficult for businessmen operating in China to expect to make profits without maintaining close connections with politicians. And with political situations always changing, those businessmen are always at risk.

“No matter which side you bet on, you will be put in an awkward position when the table is turned among different [political] forces,” one Chinese economist tells VOA. “That means your business may be affected by the role you play.”

One country, two systems?

In Hong Kong, Xiao’s disappearance has created a climate of fear, and some are already reportedly looking to move their assets elsewhere. One big question for many is why Xiao decided to remain in Hong Kong instead of moving elsewhere given the increasingly tight political environment in China under Xi Jinping.

Hong Kong, a special administrative region, was long seen as a safe haven from China. After its return to China from Britain in 1997, the port city was guaranteed basic rights that are not commonplace on the mainland in a formula called “one country, two systems.” But, over the past few years, concerns that those rights are beginning to erode have blossomed.

Just last year, five men linked to a Hong Kong book publisher that focused on gossip about China’s leaders were abducted; three of them in China, but two others were taken against their will to the mainland. One of the abducted booksellers was seized in Thailand and another in Hong Kong.

Without any clarity about the incident, even those who may think it is a positive move will begin to raise questions about the rule of law in China, how the Chinese government treats dissidents and even the “one country, two systems” model.

“As long as there is no solid evidence available to clear up any doubts (about the case), the incident’s spillover effect will only get worse and exaggerated since many tend to let their imagination run wild,” one analyst in Hong Kong said.

Get physical

What is clear, the venture capitalist told VOA, is that Xiao’s disappearance is likely to further fuel an ongoing exodus of capital from the county. 

“I think it is going to trigger some global asset allocation,” the venture capitalist said. “More money will be going toward these globally well regulated, liquid and transparent places.”

Over the past few years, China has seen a dramatic rise in capital outflows. The venture capitalist said that despite the rhetoric about U.S. President Donald Trump, there are likely to be more investments in places such as the United States and Britain.

In the past, the rich may have viewed countries such as Switzerland or Luxembourg as safe places to park their money, but now increasingly they are seeing that it is better to invest in physical assets, be it infrastructure in Britain, companies in the United States or real estate in Australia.

“Xiao Jianhua case shows that even if you are sitting in a Four Seasons Hotel in Hong Kong, you are still not that safe,” the venture capitalist said.
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After two nuclear tests and multiple missile launches in 2016, North Korean leader Kim Jong Un tested a new intermediate-range missile Sunday. The rocket flew about 500 kilometers before splashing down in international waters between South Korea and Japan. The missile is believed to have used solid fuel, a type that would make future launches more difficult to detect.

The United Nations Security Council met Monday at the request of South Korea, Japan and the United States. The 15-member council unanimously condemned the launch.

North Korea rejected the U.N.’s statement, saying the test was defensive in nature. So will the Security Council’s latest rebuke make a difference in how North Korea behaves?

“The North Koreans are very afraid of imposed regime change by the United States or [an] outside power,” says Harry Kazianis, director of defense studies at the Center for the National Interest. 

“They are extremely afraid that the United States someday will make the determination, [as in] the case in Iraq or Afghanistan or Libya, that it is time to impose some sort of regime change. So this is why you could have all the U.N. Security Council resolutions that you want, you can have toughest language that you want. … Quite frankly, it’s not going to work,” Kazianis said.

Jonathan Miller, senior fellow for the China, East Asia and United States program at the EastWest Institute, agreed. “Within the past six years or so, the North has conducted so many missile tests and nuclear tests with little to no change to their strategic calculus,” he noted, that “this kind of statement from the U.N. Security Council, while welcomed, I don’t think it will fundamentally change the course for Pyongyang.”

Is international pressure sufficient?

A goal of the international community has been to create an environment where North Korea decides to denuclearize, but is there adequate international pressure for Kim Jong Un to abandon his goal of building a nuclear arsenal?

Kazianis does not see a “scenario where North Korea gives up its nuclear weapons program.” While countries like the United States, South Korea, and Japan outman and outgun North Korea, he says, “the only thing that brings sort of an equalizer to the situation is North Korea’s, quite frankly, crude nuclear weapons program.”

Miller says while North Korea may not abandon its goals in the foreseeable future, there are other unknowns.

“I think the wild card here is how the Trump administration will approach the North. I really don’t believe they really have that figured out yet. You can kind of clearly see that the U.S. fully articulated its thoughts on how it will approach North Korea, having [Japanese Prime Minister Shinzo] Abe speak first and the president in the background just echoing those thoughts,” Miller said, referring to an impromptu news conference by the two leaders in Florida after news broke about Pyongyang’s missile launch. 

What’s price of abandoning nuclear work? 

“I don’t know that the North is in a position where they feel they can barter their program for almost anything,” Miller said. “It’s become that ingrained into the policy and to the legitimacy of that regime. … It becomes very difficult to move toward that road of denuclearization.”

If North Korea won’t abandon its programs, how should the international community respond?

Kazianis says there are two things the international community should do. First, he says, is to further isolate and limit North Korea’s nuclear and missile capabilities. This can be accomplished with the United States’ Terminal High Altitude Area Defense missile system (THAAD), but also with additional defenses in Japan. 

The second item Kazianis suggests is talking to North Korea. “We don’t want to get into a situation where we have these endless cycles of North Korean missile testing … because eventually one of these tests could go wrong, and it could cost people’s lives, and that’s how wars start,” the analyst added. 

 
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Kem Sokha is expected to deliver a very different type of political approach after assuming the leadership of the Cambodian National Rescue Party (CNRP) following Sam Rainsy’s resignation and a raft of threats from Prime Minister Hun Sen.

Mild mannered with a focus on village economics and social issues, Kem Sokha has eschewed the extravagant lifestyles of Cambodia’s political elites, commonly referred to as Khmer Riche, preferring more modest values that have endeared him to rural voters.

Whether that’s enough to unseat Hun Sen in general elections next year will be tested in four months when thousands of local village posts are contested at commune elections, primarily between the CNRP and the ruling Cambodian People’s Party (CPP).

Communes are clusters of villages, and in a country with no formal public opinion polls, these local elections offer the best indicators as to how the two main political parties are performing.

Elections pending

Hun Sen and the CPP maintained control in controversial 2013 elections that the opposition disputed with allegations of cheating. The CPP stayed in power with a substantially reduced margin, and the opposition needs to lift its tally by just seven seats in the 123-seat National Assembly during next year’s general election if it is to form a government.

That prospect has rattled Hun Sen, and Sam Rainsy subsequently faced a barrage of defamation suits backed by the prime minister, resulting in convictions and two jail sentences.

Those cases were widely criticized by civil society groups for being politically motivated and backed by a judicial system often criticized for a lack of impartiality and transparency.

Sam Rainsy’s decision to step down was made after Hun Sen announced he would introduce legislation banning people with criminal convictions from leading political parties and, according to Sam Rainsy, that would have resulted in the dissolution of the CNRP.

The government has denied allegations of election cheating and insists its courts are impartial and convictions are the result of an independent judiciary. When contacted for comment, a government spokesman was unavailable.

Ren Chanrith, a political coordinator at the Youth Resource Development Program, said legal posturing was aimed at preventing Sam Rainsy from contesting the June 4 commune and general elections, but his resignation would only inspire Kem Sokha and the CNRP faithful.

“So the resignation of Mr. Sam Rainsy (will) just make the opposition party become stronger and their activists and supporters will do more to get a successful (result) in the upcoming election. So you know, they will do more,” he said.

The prime minister insists it is his ability to ensure security that led to an unprecedented era of economic growth since three decades of war ended in 1998. It’s an argument that still wins votes.

He has also persistently warned of a return to civil conflict if he fails to win the election, but such threats carry far less weight among the nation’s youth and don’t resonate among older voters like it used to.

City versus the country

Importantly, analysts say, Sam Rainsy has secured the urban and youth vote for the CNRP, thanks in part to changing demographics and a postwar baby boom. More than 65 percent of the population is younger than 35 and many have grown tired of Hun Sen’s autocratic-style.

CNRP advocate Van Thorn said Sam Rainsy’s resignation was disappointing but was necessary to save the party and position the opposition ahead of the commune elections, where he expects Kem Sokha to do well.

“If we can look to the state of the new commune elections, I am kind of sure the CNRP will win a lot of seats and this will help the CNRP move ahead towards the national elections because generally in the countryside, almost everywhere in Cambodia, people are now more interested in the politics,” he said.

Sam Rainsy’s resignation took many by surprise, including Billy Chia-Lung Tai, an independent human rights consultant at CL Consulting who suggested there might have been some discontent with his performance within CNRP ranks.

A former investment banker and finance minister, Sam Rainsy is known for his skiing holidays and taste for the good life. He spends most of his time in self-imposed exile in Europe.

That stands in stark contrast to most Cambodians, particularly in the countryside, where issues such as illegal logging, land grabbing, corruption and a yawning wealth gap will dominate electioneering.

Forty percent of this country’s population lives below the poverty line.

Focus on Kem Sokha

To win control of the government, Kem Sokha and the CNRP must improve in the countryside where Hun Sen is at his strongest with 20 years of peace and an older generation of war veterans behind him.

“Strategically I feel, the CNRP would feel they’ve got the urban vote kind of locked down,” Chia-Lung Tai said. “They’ve probably reached all the people that they could convert and they’re really trying to go for the rural sector and I would agree that Sokha, Kem Sokha, is a much better candidate for that.”

Surveys conducted by the CPP, according to government sources and diplomats, suggest the ruling party could suffer at least a 10 percent swing against it at the commune election. Some have suggested the swing against the ruling party could be as high as 30 percent.

“That’s going to be quite significant, and I have a nagging feeling that they will do everything above or below board to make sure that doesn’t happen,” Chia-Lung Tai said.

Molyny Pann contributed to this report.
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U.S. defense company Lockheed Martin says talks are being held between the American and Indian governments on its proposal to manufacture F-16 fighter jets in India.

The comment by Lockheed’s head of F-16 business development, Randall Howard, came at an air show in the Indian city of Bengaluru amid questions whether the company’s proposal to produce fighter jets in India will run counter to U.S. President Donald Trump’s opposition to American companies moving jobs and manufacturing overseas. 

Lockheed Martin’s F-16 and Saab’s Gripen fighter plane from Sweden are regarded as the front-runners in getting a lucrative, multi-billion dollar contract for 200 to 250 jets for the Indian air force that New Delhi is expected to finalize sometime this year.

India has insisted that any foreign firm awarded the deal will have to collaborate and manufacture in the country with a local partner to boost its drive to build a domestic air production base. It is part of an initiative by the world’s biggest arms importer to link its defense purchases, which could top $200 billion over a decade, to Prime Minister Narendra Modi’s “Make in India” pitch.

Lockheed Martin last year offered to set up a manufacturing base for F-16s in India provided it is awarded a contract for the fighter jets that India wants to buy – a proposal supported by the former Obama administration. In fact, the company had proposed to make India the sole producer of the single-engine combat aircraft, which is being phased out in the United States, but for which it is seeking markets in other countries. 

Amid uncertainty about the new U.S. government’s policy, Lockheed Martin has said in Washington that the Trump administration will want to take a “fresh look at some of these programs” and that it is “prepared to support that effort to ensure that any deal of this importance is properly aligned with U.S. policy priorities.”

Inaugurating the air show earlier this week, Indian Defense Minister Manohar Parrikar said no exceptions will be granted to setting up a facility to produce planes in India, and it is up to companies making proposals to get clearance with their governments. “That is my requirement,” he said.

India, once heavily dependent on arms purchases from Russia, has diversified its purchases in recent years and defense imports from the United States have grown quickly in recent years.

India’s huge appetite for defense purchases to modernize its armed forces attracted the world’s top defense companies to the air show.

Among them was Sweden’s Saab, which showcased its fighter jet at the air show, and which reiterated its commitment to establishing what it called a world class aviation facility in India to manufacture the Gripen both for India and the global market.

Pitching for its Gripen aircraft, sales director Kent-Ake Molin told reporters ahead of the air show that “what we are offering is a futuristic, new generation plane and not one that is reaching the end of its life.”  

Besides manufacturing, India has insisted on transfer of technology as part of its efforts to build a domestic production base and end its dependence on costly defense imports.

That was not expected to be a roadblock with the F-16 as American and Indian defense ties have grown in recent years.

Anit Mukherjee, assistant professor at the S. Rajaratnam School of International Studies in Singapore said the deal “will be an important topic of conversation between senior defense officials in both countries in the next few months.” He points out that although “there is a general element of unpredictability around President Trump,” it is widely believed that U.S.-India defense ties will be marked more by “continuity than disruptive change.”   

While that may be the case, defense analysts in India believe uncertainty clouds the future of the proposal to make F-16s in India. “This is going to be in direct conflict with (Trump’s) America First,” says Amit Cowshish with the New Delhi-based Indian Institute for Defense Studies and Analyses, who was a former financial adviser to India’s Defense Ministry.  

From India’s standpoint, he says any deal for fighter aircraft will have to be contingent on local manufacturing. “For this government to go back on it and say that we are just going to buy it off the shelf, or go with some screwdriver technology, it is not going to go down well either with their own philosophy or with the services.”
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Three Chinese warships Friday wrapped up a week of scheduled training exercises in the South China Sea, state media said, shortly after China’s sole aircraft carrier tested its weapons in the disputed region.

The flotilla of warships, including a destroyer that can launch guided missiles, had been conducting drills since February 10 and were now sailing to the eastern India Ocean and the Western Pacific, the official Xinhua News Agency said.

Exercises by the Chinese ships, in particular the aircraft carrier Liaoning, in recent months have unnerved its neighbors, especially given long-running territorial disputes in the South China Sea.

The training included sudden attack drills and had been carried out successfully in poor sea conditions, Xinhua said.

The drills were “without an arranged script” and “as close as possible to real combat,” military affairs expert Yin Zhuo told the state broadcaster China Central Television.

Regular exercises by the Chinese navy in the high seas were an “unchangeable trend,” Yin said, though he added that China’s long-range naval capabilities were not sufficient to secure its interests in open waters. He did not elaborate.

China on Wednesday warned the United States against challenging its sovereignty in the South China Sea after reports that the United States was planning fresh naval patrols in the region.

The United States has criticized China’s construction of man-made islands and its build-up of military facilities in the sea, and expressed concern they could be used to restrict free movement. The U.S. navy has conducted several “freedom of navigation” patrols through the waters.

China claims most of the South China Sea, while Taiwan, Malaysia, Vietnam, the Philippines and Brunei claim a portion of the waters that command strategic sea lanes and have rich fishing grounds as well as oil and gas deposits.

China says it is committed to freedom of navigation through the waters. 
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