A year ago, the chairman of Chinese insurance group Anbang was telling people he wanted to buy a certain salmon-colored, London-headquartered global financial newspaper. Flushed from his successful acquisition of New York’s Waldorf Astoria hotel in 2015 and the $5.5bn purchase of US-based Strategic Hotels & Resorts in late 2016, Wu Xiaohui was in serious expansion mode.

But on Friday, after eight months in government detention, Mr Wu was charged with embezzlement and fundraising fraud. Anbang was seized by Chinese regulators, probably in an effort to stave off the company’s collapse.

I am relieved that Mr Wu never had his chance to buy the Financial Times. A decade ago, a rival tycoon showed me documentary evidence and alleged that Mr Wu used powerful political connections and mafia-style tactics to snatch a piece of prime real estate in Beijing’s central business district. Other stories of his misdeeds were more salacious and harder to verify.

Mr Wu’s trump card was his marriage to the granddaughter of former paramount leader Deng Xiaoping, an association that allowed him to demand the co-operation of all levels of the Chinese state. Some believe his recent downfall was partly because of his estrangement from his wife, which lost him the family’s protection.

He is not the only Chinese billionaire to be punished over the past year. While none of their founders is currently in jail, several other privately owned conglomerates, including Fosun, Dalian Wanda and HNA, have all had offshore acquisition sprees abruptly halted. The surest sign that a Chinese mogul is about to be arrested is any hint he is trying to parlay his wealth into political influence

The current predicament of some of China’s most prominent magnates is rooted in Chinese history and politics.

In ancient times, merchants were at the very bottom of the four official social classes, below warrior-scholars, farmers and artisans. Although some became very rich they were considered parasites in Chinese society.

Ever since the Han emperors established the state salt monopoly in the second century BCE (remnants of which remain to this day), large-scale business enterprises have been controlled by the state or completely reliant on the favor of the emperor and the bureaucrat class.

In the 20th century, the Communist emperor Mao Zedong effectively managed to stamp out all private enterprise for a while.

Until the party finally allowed “capitalists” to join its ranks in 2002, many of the business activities carried out by the resurgent merchant class were technically illegal. China’s rich lists are populated by entrepreneurs operating in just a handful of industries — particularly real estate and the internet.

Tycoons like Mr Wu who emerge in state-dominated sectors are still exceedingly rare. They are almost always closely linked to one of the old revolutionary families exercising enormous power from the shadows.

Theories abound as to why the Chinese government has so harshly reined in the global expansion plans of the likes of Anbang, HNA and Wanda. Their frantic acquisition sprees came as Beijing was attempting to stop hundreds of billions of dollars of capital flight, and their propensity to overpay for assets was seen as a loss of face for China. There were fears they had overleveraged and could collapse, blowing big holes in the balance sheets of overstretched state banks.

Just as reasonable an explanation for the crackdown is the public prominence of the founders of these companies and their ever-decreasing reliance on state and party patronage as they expanded abroad.

The surest sign that a Chinese mogul is about to be arrested is any hint he is trying to parlay his wealth into political influence.

Now that President Xi Jinping has abolished his own term limits, setting the stage for him to rule for life if he wants to, the system of state patronage and the punishment of independent oligarchs is likely to expand. Any company or billionaire who offends the emperor or his minions will be swiftly dealt with in the same way as Mr Wu.

There is one group of Chinese companies with charismatic — some would say arrogant — founders that enjoy immense economic power in China today. They would seem to be prime candidates if the assault on private enterprise is stepped up.

Internet groups Alibaba, Tencent and Baidu are not only hugely profitable but also control the data that are the lifeblood of the modern economy. That is why Alibaba founder Jack Ma has repeatedly said, including to the FT, that he would gladly hand his company over to the state if Beijing ever asked him to. Investors in New York-listed BABA can only hope it never comes to that.

Source: Financial Times Jamil Anderlini / February 27, 2018