You have a point, but Xiao is probably in a gray area for a long time.

Originally Xiao is arbitraging between the rules of US and China (like many other scholars), and it is legal I think, although unethical.

Without insiders like the Chinese scholars trained in US to go between, no US journalists or DA or science integrity investigators would have any interest in digging if the NIH grant is appropriately used. (I think you are wrong on this point).

Of course, during the past 10 years war between Fang and Xiao, China has changed a lot with the internet development. And now, you point may be relevant, that world news and general public and perhaps investigators may pay attention to this issue directly.

This also depends on the recent events happened to Fang and Fang, where the ground is gained by letting the blood.

(Not mean to offend you, you seem well versed in the US side but not quite familiar with China's reality)