Fiducia Partners Insights - Wealth Preservation and Succession in China

Wealth Preservation and Succession In China

January 24th, 2020 Posted by Family Wealth 0 thoughts on “Wealth Preservation and Succession In China”

According to Wealth-X’s most recent Billionaire Census report, there are currently around 285 billionaires in China although other reports suggest the figure is more like 400 with two more created every week – a growth rate almost double that of the US and Europe. 

That there is such vast wealth held by individuals is down to the Chinese culture and the policy measures that encourage and support the private sector. Such support began in 1978 when the then-leader delivered a speech proposing that China learn from richer countries, allow workers and peasants to get ahead and give enterprises the power to make decisions. This was the start for almost all mainland Chinese enterprises that are successful today. And with Chinese culture valuing family so highly, most of these private companies are family-owned, around 80%. Major Chinese companies that are family-owned include the Pacific Construction Group (90% owned by the Yan family), Amer International Group (100% owned by the Wang Wen-Yin family) and GTI Holdings Ltd (100% owned by the Sum Poon family). The collective yearly revenues for these three companies alone hits over $220 billion.

With this relatively recent freedom for enterprise, 97% of Chinese billionaires are self-made with an average age of just 56. This means that many are now thinking about succession likely to occur in the next 10-15 years leading to a phenomenal rate of new family offices being set up. Principles are ageing and so their priorities are shifting from wealth creation to preservation. And due to this wealth being relatively new, the concept of a family office is also new in China compared with Europe, the United States and other parts of Asia, where wealthy families have long used privately help firms to handle investment and wealth management decisions.

But this hasn’t put Chinese families off. On the contrary, in Campden Wealth’s recently released Chinese Family Office and Wealth Management Report 2020 they report that more than 75% of UHNW Chinese families established or joined a family office since 2010. The average net wealth of the families they studied was $943 million and of those not yet using family office services, 75% are interested in doing so. 

According to Campden’s report, most families have opted to manage their wealth through a single-family office (30%), 16% use a commercial multi-family office, 16% use a private multi-family office and 9% use a hybrid vehicle. But there are some key challenges with setting up a family office in China, the most pressing being a lack of experienced talent, which not surprising with it being a relatively new concept. 

And another key problem that many wealthy Chinese principles are facing is how to manage succession into the second generation. China’s One-Child policy that lasted for 35 years until 2016 has left many ageing principles with just one heir. Research shows that there are around three million entrepreneurs reaching the age of retirement and 80% of second-generation heirs have no desire to join their family’s business meaning many will have to look outside of the family for successors.

Aware of these challenges, I will follow with interest the development of family offices in China and how ageing principles will overcome the difficulties of sourcing talent and managing succession. I wonder if, in 30 years, the percentage of wholly and majority-owned family businesses will drop right down as families struggle to interest their sole heirs in taking over. 

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