In the early hours of November 16, 2010, when the high-flying Sydney banker and his glamorous wife Niki Chow should have been flying to Spain to seal the $100 million sale of their London-listed travel business, Matthew Ng (pronounced "Ung") was stripped of his wedding ring, his Buddhist amulet and all his clothes.

"It was cold," says Ng, in one of a series of letters sent from the Hunter Valley prison farm to which he has recently been transferred. "A very grumpy doctor examined me while I was naked for five minutes. It was then I started to feel fear and loss of dignity and a complete departure from the world I was accustomed to. Then I was asked to put on the detainee uniform: dark blue, flimsy material and very smelly. I started to panic."

When Ng should have been walking in Italian leather shoes through the doors of a five-star suite in Barcelona with his Malaysia-born wife, on behalf of investors including Frank Lowy and James Packer, he was being led to the dank and overcrowded concrete cage that was to become his new abode.

"I was totally shocked to see some 20 men, mostly without hair, lying side by side on a concrete slab with some vinyl as a 'bed'," he says. "I was asked to lie down close to the toilet with a dirty-smelling and very old quilt to cover myself. Obviously I could not sleep. And I didn't sleep for a full 48 hours."

Psychologists have known since Pavlov's time that the tougher the character and the longer they hold out, the greater the damage when they crack. Human rights groups who support Chinese dissidents have shown how the damage to an individual can tragically expand along the hairline fractures that exist in almost every family. Ng was acutely vulnerable on both counts.

Handsome, charismatic and smart, Ng was the only son of a proud and traditional Chinese family. "He was brought up as the king of kings," says his eldest sister, Li Jaing. "In traditional Chinese terms, he was the only son in several generations. When others saw barriers, he saw opportunities."

Ng was born in China but joined his family in New Zealand in 1986, age 20. He earned an MBA and made a name as a deal-maker at the Commonwealth Bank in Sydney. He returned to China in the late 1990s to start a travel business, Et-China. When the SARS epidemic almost wiped out his business in 2003, he survived by selling his Sydney house and mortgaging his father's NZ home, and then teaming up with a local state-owned behemoth, Lingnan.

With his company providing a portal into the world's fastest-growing market, international investors plied his firm with $US50 million in capital, including more than $7 million from each of Och-Ziff Capital, a global hedge fund, and the family investment vehicles of Frank Lowy and James Packer. He listed his firm in London, negotiated a $100 million sale with the Swiss firm Kuoni, but failed to observe the hidden rule that in China profits must be redistributed to powerful political patrons.

"Being trained in Western countries, he lost a bit on the Chinese side, like the idea of bribery," Jaing says. "He knew about law and saw things in black and white. But in China ... when you do business, it's not that simple."

During five months of rolling interrogations, the man who had always got his way stubbornly refused to confess to the flimsy allegations arraigned against him. He would not agree to lie to investors and persuade them to sign over their shares – even after being offered early release. Occasionally they offered carrots but mostly they showed him how a seemingly omnipotent Communist Party organism could crush all things in its way. His three young children with Chow were denied visas and forced to retreat to New Zealand. Chow struggled to retrench staff and arrange lawyers as authorities detained or intimidated all the company's executives and froze their personal assets.

Gradually, as Ng watched his assets dissolve or disappear into the hands of his erstwhile business partners and prominent high officials, his thoughts centred on his eldest child, Isabella, the high-achieving 13-year-old daughter of his first wife with whom he had an almost-umbilical connection. She found out about her father's alleged embezzlement in the local newspaper while at her Guangzhou boarding school. Isabella was shattered, at first, but then emboldened when she read his lawyer's powerful defence. Her father was innocent, she reasoned, and therefore he would be freed.

She wrote him letters and quoted the first lines of a song about "starting again", which had become popular after the Sichuan earthquake. But, when the appeal court upheld three of the four embezzlement-type convictions and sentenced him to 10 years in jail, Isabella became so depressed that she could no longer bring herself to eat.

She never recovered. The emaciated girl was admitted to the Jingxi Nanfang Hospital and taken into intensive care. She died of anorexia-related complications on January 9, 2013.

Ng was not told his beloved daughter had fallen ill. After a battle of wills within the family that extended into the Australian Government, he was not told that she had died. "It was my decision; I wanted Matthew to have happiness for long enough to sort out his problems," Jaing says, explaining the cultural and deeply personal logic of keeping him in the dark. "I lost my eldest daughter. I know how long it takes to get over that. I was fighting with the Consul-General because they thought they had the right to tell Matthew but I stopped them. Finally they agreed when I told them my experience."

Ng continued fighting. In jail he drew strength from the family's story that Isabella was studying in Britain and by the "starting again" song she'd planted in his head. Chow, meanwhile, was having second thoughts about their marriage. She had confronted him about some personal letters she'd found, while cleaning out his office, which showed that her marriage had not been as exclusive as she'd thought. She was stuck between her husband's A-type personality and his scared but domineering family, in a country that was depriving her of everything she had. But first she needed to do whatever she could to get him out of China.

Inside prison, Ng got to know a who's who of discarded entrepreneurs. One he heard about but didn't have the chance to meet was another Australian, a grounded and well-spoken accountant called Charlotte Chou, who had built up an equally successful business and suffered a remarkably similar fate.

Chou's Hong Kong business partner had spread huge bribes across the upper echelons of the political-legal establishment – one policeman alone received 5 million yuan, she learned – to keep her in jail long enough to expropriate and gouge 200 million yuan from the IT university she'd founded.

Chou was subjected to the full Kafkaesque force of Chinese justice, with its mixture of punctilious attention to the letter of the law and merciless mental brutality. The Guangzhou police waited a full six months before arresting her in order to comply with a regulation that prevents mothers from being separated from infant children. When they came, however, they did so with the usual theatrical effect, at 10.15pm, just after she'd placed her baby down to practise walking after his final evening feed.

Chou has no idea where she was taken on that sultry Guangzhou summer evening in 2008, except that it was a tiny office with a broken desk and chair, but she vividly remembers the teams of guards and interrogators who manipulated every detail of her experience – right down to continuing their surveillance into a toilet cubicle that had no paper – as they worked to extract the confession for which they'd been so handsomely paid.

Chou steadfastly refused to lie in exchange for the early release that she'd been promised. "I know what's going on," she told her interrogators. "You want to take the college and you can't do that."

Torture is rarely used with foreigners and nor is it usually necessary. The most effective weapon is sleep deprivation, which disables the delicate workings of the frontal lobe. Studies show how focusing becomes more difficult, time becomes confused and people become suggestible. By about day four, as hallucinations appear and the scattered dreams of micro-naps randomly insert themselves into fragmenting memories, the capacity for strategic decision-making disintegrates.

"You don't need to water-board them if you can keep them awake," says Kurt Lushington, head of psychology at the University of South Australia.

Chou prepared herself to remain strong and performed standing exercises to keep her mind active, as she refused to touch the pen and paper in front of her. But then the days and nights began to blur. On about day two, or three, she can't be sure, an auxiliary team was retained to keep her head upright. She couldn't get her son's image out of her head despite a screaming headache. She watched him after his evening feed staggering towards her, arms and grinning gums wide open. It was so real she wanted to reach forward and hold him.

She sang children's songs and wrote him poetry on her confession paper, to keep insanity at bay.

"I was like that for four days and nights," Chou says, her composure beginning to waver. "You get to a point of breaking down."

Unlike Ng, the powerful personality from a complex family who never cracked in jail, Chou was a natural conciliator from a tightly bonded home. On day five, with her brain completely fried, she was ready to believe the friendly police director offering a way out. The good cop explained four logical reasons that she could soon be set free, but one was particularly persuasive: "Because the baby is so little, he cannot live without you."

When Chou explained that she could not sign her name to lies, he suggested she annotate the inaccurate statements and then she could return home to her baby. "I thought, OK, just like a compromise," Chou says.

He laid down a soldier's coat for her, in gratitude, and she slept the longest and deepest sleep of her life. When she awoke, she was surprised to find herself taken not to her baby at home but to a further six more years' detention.

Chou endured even worse abuses than Ng but somehow she kept her mind at peace. She read books and helped other inmates. "All my life I have been lucky," she says. "I met just one bad man."

She is speaking out because she would like the tycoons, scholars and diplomats who have made their fortunes and careers in China – many of them spruiking China's commitment to "rule of law" – to understand that nobody is immune.

When she was finally reunited with her son, on New Year's Day in Sydney after six and a half years "working" in China, she barely missed a beat in the rhythms of his daily life. Sometimes she fantasises about getting her college back but thoughts of justice are a distant second in her mind.

One of the first things Chou did after her release this year was make the three-hour drive to the St Heliers Correctional Centre in Muswellbrook, where Ng was serving out his sentence after becoming the first Australian to be repatriated under a bilateral transfer agreement.

After holding out with such strength in China, it was only upon returning home that Ng realised his whole world was collapsing.

"Isabella is dead," Matthew's wife Niki Chow had told him, when she visited him on December 7. "She's gone."

Months later, Ng is still processing what his wife had told him about his eldest daughter and the toll that has been paid on their relationship. No one in the family can remember seeing Ng cry before but now it's difficult for him to stop.

He has lost "almost everything", as he wrote in a letter, and says he's learnt and changed, and has renewed commitment to his family. But he hasn't given up his pursuit of justice or recovering the remnant pieces of his family and welding them back together. He needs a royal pardon, or at least some qualified freedom, to begin his newest and greatest fight.

"My immediate and top priority is to rekindle my love and relationship with my dearest wife and my three surviving young children," he says. "I cannot afford to lose my wife and children again."

with Amanda Hoh