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China's Tycoons Fall From Grace

DAVID GREENE, HOST:

A hundred and one people became billionaires in China last year, but that news has been eclipsed by stories of high-flying tycoons falling from grace. Planet Money has been reporting on money and China, including this story from NPR's Anthony Kuhn on the tycoons' fate.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR: (As character) Only by breaking the wall...

ANTHONY KUHN, BYLINE: When the Chinese company LeEco launched its new smartphones with futuristic stage shows, it reminded people of Apple. LeEco's billionaire founder, Jia Yueting, who resigned as CEO in July, seemed to model himself on Steve Jobs. Back in 2015, he warned Apple...

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JIA YUETING: (Through interpreter) Apple is a great company, but we think that as time progresses, either Apple must reinvent itself, or we will topple it.

KUHN: Those were heady days for a Fu Hang Xia (ph). He helped produce LeEco's product launches.

FU HANG XIA: (Through interpreter) They wanted to create a miracle. They did everything to the highest standards and burned through a lot of money.

KUHN: LeEco started in electronics and then moved into everything from e-commerce to movies and electric cars. But it expanded too fast. Its credit dried up. It began to crumble. That's why Fu Hang Xia and other LeEco vendors have been camped out in the company's lobby for months trying to get the money the company owes them. Despite this, Fu still admires Jia Yueting.

FU: (Through interpreter) All China's tycoons burn through money like this to build up their businesses. If their gamble pays off, then they're winners. If not, then they end up like Jia Yueting.

KUHN: Tu Xinquan of the University of International Business and Economics in Beijing says that China's tycoons emerged during an era of rapid growth and lax regulation. He adds that many tycoons got rich off access to assets controlled by the government.

TU XINQUAN: (Through interpreter) These big companies have political connections, so they can get land cheaply. Then they put up that land as collateral for loans and get a lot of money.

KUHN: Flush with cash but with limited investment options at home, China's tycoons began snapping up assets overseas - movie theaters, hotel chains and choice real estate. In some cases, they bought these assets at a loss just to get their money out of China. This reflects a weak rule of law says Minxin Pei, an expert on Chinese politics at Claremont McKenna College.

MINXIN PEI: These officials and tycoons understand perfectly well that any money inside China has no legal protection, even if it's legitimate money.

KUHN: All this depleted China's foreign currency reserves and buried banks under a pile of bad debt. Soon, China's government moved to limit the tycoons' overseas buying binges. Minxin Pei says that their reckoning is also tied to China's sweeping anti-corruption campaign.

PEI: This is one reason why some tycoons will have default because they are just so closely connected with those people who have lost power.

KUHN: The businessmen, Pei says, are like geese - raised on the patronage of politicians who have now either retired or fallen in the anti-corruption drive. All that's left, says Pei, is for new officials to cull the birds.

PEI: If you want to kill geese, they are fattened, but you really want to pick the one you think is most deserving of slaughter.

KUHN: That's no consolation to vendor Fu Hang Xia who watches dejectedly as LeEco disintegrates.

FU: (Through interpreter) Our aim is simple. We just want to make money, and if we don't get it, we won't leave.

KUHN: LeEco founder Jia Yueting, meanwhile, remains in the U.S. with no apparent plans to return to China. Anthony Kuhn, NPR News, Beijing.

(SOUNDBITE OF SPANIOL'S "PRAAH COM POESIA") Transcript provided by NPR, Copyright NPR.