A billionaire with links to China's Communist Party elite, Xiao vanished earlier this year. He was last seen in the early hours of Jan. 27, leaving the Four Seasons Hotel in Hong Kong in a wheelchair with his head covered, accompanied by several people described in media reports as mainland Chinese agents.
Xiao's whereabouts are not known but his dramatic disappearance sparked widespread speculation he had been caught up in Chinese President Xi Jinping's crackdown on corruption.
Two of the sources with knowledge of the process said that Chinese authorities are now pressing Tomorrow Holdings, Xiao's conglomerate, to pare back its sprawling asset portfolio, which includes stakes in more than 30 domestic financial institutions.
The sale is part of Beijing's broader efforts to rein in risky practices by financial services firms, the sources said.
The same two sources said Tomorrow had set up an internal team to handle the sale, which will include stakes in Huaxia Life Insurance, New China Trust Co, Bank of Weifang and Baoshang Bank. The stakes are substantial, though the specific percentage levels have not been disclosed and it is unclear if Tomorrow controls all of the companies directly.
"The process is at an early stage and informal feelers are being sent to some large insurers as well as private equity companies," said a fourth person with knowledge of the plans.
One source with direct knowledge of the situation said Xiao's wife Zhou Hongwen, who co-founded Tomorrow with him in 1999, is running the business in his absence, but it was unclear how much she was involved in the decision to put the assets up for sale and whether she is closely involved in the process.
Beijing has cracked down on other groups that, like Tomorrow, have used cash from insurance products to invest aggressively in riskier deals in areas such as property and soccer.
Last month, authorities detained Wu Xiaohui, chairman of Anbang Insurance Group and owner of the Waldorf Astoria hotel in New York.