No businessman in China was more successful, famous or rich than Jack Ma, whose magic touch turned companies like Alibaba into international juggernauts. He was also unafraid to cross the Chinese authorities, insisting he would not do business with them.
But an investigation by The New York Times and The Wire China found that another Chinese businessman, with deep connections to relatives of China’s political elite, had been secretly investing in Mr. Ma’s companies. Through a network of shell companies and stand-ins, that businessman, Xiao Jianhua, entered into deals in Mr. Ma’s companies over a period of five years, the investigation found.
Mr. Xiao, a billionaire, is now in detention serving a 13-year-sentence for bribery and corruption, a high-profile target in President Xi Jinping’s dramatic consolidation of power.
Mr. Ma, for his part, has all but retreated from public life, having no formal role in the companies he founded. A lawyer for Alibaba said that Mr. Ma “never had any business relationship with Mr. Xiao,” and that “the connections you claim to exist do not have any basis in fact.” Two of Mr. Ma’s major partners said they had looked and found no links to Mr. Xiao.
Mr. Xiao could not be reached for comment, but a former senior executive at his now-defunct company confirmed that it was behind the investments. “As far as we know,” the executive said, “Jack Ma was unaware of those deals.”
Here are seven takeaways from The Times and The Wire China’s investigation.
The men’s companies were enmeshed in at least $1 billion in deals.
Behind the scenes, Mr. Xiao’s Tomorrow Group secured lucrative shares in an array of Mr. Ma’s businesses, according to an examination of more than 2,000 confidential documents from the company. There was no evidence in the documents, provided by a former employee, that Mr. Ma knew of the transactions.
The deals offer a close-up view of China’s signature brand of capitalism, where well-connected entrepreneurs and those who raise money for them are better off, at least in some cases, not interacting with one another.
The investments were made with the utmost secrecy.
Mr. Xiao controlled his vast empire through offshore entities and proxy shareholders, granting him anonymity as a financier and shielding the investments from public scrutiny.
This had long been part of his playbook. His specialty was as a concierge to China’s princelings — helping the political elite transfer wealth abroad and buy and sell assets. In at least one case, he did so for a sister of Mr. Xi, China’s president.
Mr. Xiao pounced on Alibaba as China’s elite were seeking a cut.
As Mr. Ma’s success took off, the Chinese authorities paid more attention to his foreign backers. In September 2011, Chinese investors began increasing their foothold in his e-commerce giant Alibaba, which was majority-owned by foreigners.
That is when Mr. Ma and Mr. Xiao’s parallel worlds converged.
The new investors included an obscure British Virgin Islands shell company called Financial Giant. On paper it was owned by a 24-year-old woman whose family, the documents show, served as proxies for Mr. Xiao. The $25 million stake she held for him would grow to $160 million when Alibaba went public in 2014.
A movie star’s husband, and friend of Mr. Ma, helped Mr. Xiao get a piece of Mr. Ma’s film business.
In at least two of the Xiao-linked investments, Mr. Ma’s friend and business partner Huang Youlong entered into the deals on behalf of Mr. Xiao’s companies.
One investment was in Alibaba Pictures, a film and television company. Mr. Huang and his wife, Zhao Wei, paid about $400 million to acquire a 9 percent stake. But the couple paid for it with money from one of Mr. Xiao’s companies.
Mr. Xiao was behind the biggest shareholders in Mr. Ma’s brokerage firm.
In 2015, Mr. Ma and a business partner bought a Hong Kong brokerage and renamed it Yunfeng Financial — the “Yun” in Yunfeng is Mr. Ma’s given name in Chinese.
The purchase offers the clearest evidence that Mr. Xiao was a crucial shareholder in one of Mr. Ma’s companies.
Through four offshore companies and a fifth firm owned by Mr. Huang, Mr. Xiao controlled roughly one-third of the company’s shares. That made his network its largest shareholder — even larger than Mr. Ma.
After his arrest, Mr. Xiao’s connection to Mr. Ma’s companies continued.
Mr. Xiao was detained in 2017 as part of a Chinese crackdown on corruption. His relatives and associates scrambled to unload some of their holdings, including more than $60 million held in one of Mr. Ma’s companies, the documents show. But his financial ties to Mr. Ma did not end there.
In 2020, when Mr. Ma was seeking to go public with his e-payment company, Ant Group, Mr. Xiao’s network controlled about a tenth of a percentage point of Ant’s shares. Even that small fraction would have been worth an estimated $307 million following the I.P.O.
But it was not to be. After Chinese officials dismantled Mr. Xiao’s companies — and Mr. Ma publicly criticized Chinese financial regulators — the government called off the I.P.O.
A paragon of capitalism in China, Mr. Ma could not escape the seamy side of business there.
Scholars of China’s economy considered the findings by The Times and The Wire China shocking — and telling. “Finding them connected this way,” said Meg Rithmire, a Harvard Business School professor who has studied Mr. Xiao’s financial network, “shows that the Chinese system is so murky that everyone gets caught in the same web.”
The post 7 Takeaways From Our Investigation Into a Secret Investor in Jack Ma’s Companies appeared first on New York Times.
