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Chinese-born Canadian billionaire Xiao Jianhua, right, is seen outside the International Finance Centre in Hong Kong in December, 2013.The Associated Press

Xiao Jianhua, the Chinese-Canadian tycoon abducted last year, is living under house arrest in Shanghai, where he is busy selling off vast chunks of his overextended Tomorrow Group Holdings empire, the one-time wealth machine that had vaulted him into the top tier of Chinese billionaires.

A source close to the China-based Tomorrow Group this week confirmed that Mr. Xiao is in good health and is in regular communication with his family, who are thought to live in Canada. The source said that Mr. Xiao, who is chairman of the financial services and resources conglomerate, is overseeing the process of deleveraging Tomorrow Group.

The conglomerate’s freewheeling style, rapid growth and penchant for debt caught the attention of the Chinese government’s financial authorities, who ordered a clean-up campaign that Mr. Xiao evidently tried to avoid for some time. His is among several tycoons, known as “big crocodiles,” who have fallen victim to China’s crackdown on oligarchs as the government tries to reduce risk in the financial system after their decade-long borrowing binge.

In February, the government took control of Anbang Insurance Group. The company was part of the investment conglomerate, with more than US$300-billion in assets, controlled by Anbang founder Wu Xiaohui. Last month, Mr. Wu, whose investments included New York’s Waldorf Astoria hotel, was sentenced by a Shanghai court to 18 months in prison after having cheated Anbang investors out of more than US$10-billion.

British economist George Magnus, an associate at Oxford University’s China Centre and author of the new book Red Flags: Why Xi Jinping’s China is in Jeopardy, said Chinese authorities are forcing financial firms to “de-risk” by subjecting financial assets, including wealth management products and their valuations, to greater scrutiny and transparency. The effort, he said “includes clamping down on very short-term funding sources and making public very-high-profile examples of egregious behaviour, be it by firms or individuals, who are then punished or obliged to shrink.”

Mr. Xiao was abducted from his apartment in Hong Kong’s Four Seasons Hotel in the early morning of Jan. 27, 2017, and vanished into mainland China.

His family reported him missing the next day. Chinese authorities have never confirmed the whereabouts of Mr. Xiao, who was born in 1972, educated at Peking University, went on to acquire Canadian citizenship and was worth US$6-billion by 2016, according to an estimate by Hurun Report, a magazine that tallies a list of the richest Chinese people.

The website of Tomorrow Group has disappeared, and Mr. Xiao’s wife, Zhou Hongwen, who is a co-founder of Tomorrow Group and reportedly one of the richest women in China, is not speaking to the media. The South China Morning Post newspaper recently reported that Mr. Xiao faces a trial in a Chinese court, but it is not known whether any charges are criminal or civil in nature. If the latter, they might merely involve alleged regulatory offences.

His abduction triggered international concerns about potential abuses of human rights and freedoms in Hong Kong, the semi-autonomous former British colony. The abduction was cited prominently in a September report by Britain’s Secretary of State for Foreign and Commonwealth Affairs Zhou Hongwen. The report said Britain fears that Hong Kong’s “one country, two systems” governance framework is coming under “increasing pressure” and is no longer guaranteeing certain freedoms that were implemented in 1997, when Hong Kong returned to Chinese rule.

In a reference to the growing number of apparent abductions from Hong Kong, the report’s concluding statement said examples of the increasing pressure included “further reports of mainland security officials operating within the SAR” – the Special Administrative Region that includes Hong Kong and Macau, a former Portuguese colony near Hong Kong.

Mr. Xiao was known as a serial deal maker who was savvy enough to get close to a few wealthy leaders of the Communist Party (a Financial Times article called him the “bagman” for the leaders’ families). His political connections and deep knowledge of political structures allowed him to thrive by amassing a complex array of banking, investment banking, insurance and securities investments, with some metals assets added to the mix.

The source said that one of his techniques was to raise a lot of money quickly by selling short-term, high-yield insurance products, which consumers flocked to because their returns were better than those offered on plain-vanilla bank deposits. The source added that, given the complexity and size of the company’s holdings, the deleveraging process could take three to five years and that the task is about one-third completed.

The investments or companies associated with Mr. Xiao that have found buyers, or are being sold, include Huaxia Life Insurance, Taian Bank, Bank of Weifang and Jianxin Mining. Huaxia appears to be the largest attempted sale. Reuters reported that China’s Zhongtian Financial Group is planning to pay 31 billion yuan (about US$4.8-billion) for up to 25 per cent of Huaxia.

If Mr. Xiao survives the shrinking of his empire, the new financial regulations would allow him to hold only one licence in each financial sector – that is, he would be allowed to own only one banking licence and one insurance licence. At its peak, Tomorrow Group had held several licences in each sector.