No American can "own" a company in China. They may operate it but the Chinese retain total control. Without massive bribes to officials there would be no company. Hence the officials are the "owners". Also, he told me that their judicial system does not follow any laws. Any appearance before a magistrate comes down to solely his decision. He does not look for precedent. At any time they can confiscate or punish without recourse.
Your friend is being taken to the cleaners.
His first mistake is having a partner in Hong Kong. The suitcases full of money is not necessary to do business in China and whoever your friend's partner is, he is having a reall grand time with your friends money.
If he is doing business in Shenzhen (Southern China across from Hong Kong), then perhaps bribes can be a way of life but his next biggest mistake is setting up shop in Shenzhen.
I don't know who told him an American can not own a business in China. Sounds like a BS line your friends partner gave him to keep him in the dark and help him part with his money or his business. There are plenty of wholly owned foreign enterprises in China - many of the American. And you don't need a Chinese partner. Any company that got started that way paid dearly to get out of the joint-venture. The "officials are the owners" is true only if you set it up that way.
As for courts, they do have a procedure and if you follow it, you can win. Certainly you can do things to influence a decision or speed it along but you can prevail. It can be a real landmine though - but then, so is court in the U.S. The can seize bank assets and hold them pending the outcome of the case.
Your friend needs to look to the Shanghai area where it is less corrupt and the rules are generally followed. He needs to do some due diligence on his partner or better yet, lose him. He will think he can not do that because of what he has already invested but that amount, no matter what it is, will seem small compared to what it will cost him if he continues along the lines you describe.
That's also how you can get a multiple entry visa - really fast! :-)