China’s ultra-wealthy face heightened succession stakes
China’s ultra-wealthy individuals seek to ensure the longevity of their families, businesses, and activities, as the stakes around succession in this country are higher than in others
- China has 495 billionaires and expects further increase
- Private wealth succession is a systemic risk to China
- A layered approach to succession
China comes in second on the Forbes World’s Billionaires List 2023 with 495 billionaires amongst 2,640 individuals with 10-figure fortunes, compared to the US with 735. China’s wealthiest individuals are rapidly growing their assets and the number of new billionaires is also on the rise.
Knight Frank’s 2023 edition of The Wealth Report found that Asia saw the second-smallest decline in wealth with a drop of 7%, compared to Europe’s 17%, Australasia's 11%, the Americas’ 10%, and Africa’s 5%. In a sharp reversal, 69% of wealthy investors expect growth in their portfolio this year, with confidence driven by asset repricing, perceived value opportunities and an expected economic rebound.
Private wealth succession is a systemic risk to China
The China Family Office Report 2022 by the Financial Services Development Council and Tsinghua University PBC School of Finance highlights the imminent pressure of private wealth succession. The report stated: “This is due to the centralised wealth held by a generation of entrepreneurs for over four decades since the country’s reform and opening. Such a phenomenon differs from European and American enterprises, where succession has historically occurred gradually over the long course of development. It may bring greater systemic risk to China, which must be given full attention.”
TABInsight’s latest Global Private Wealth Management Market Outlook 2023 states: “Family wealth is a resource that demands active management and planning for a smooth transition between generations.” However, the amassed wealth comes with societal, cultural, and further layers of responsibility, as well as matters around family dynamics. Hence, it is not solely about a wealth transfer from one generation to the next.
A layered approach to succession
Succession in the context of the ultra-wealthy is more complex than passing on a business from the parents to their children. Some families hold diversified groups of business and other entities, and drive a complex web of activities in their powerful networks and communities.
There are more than a dozen different succession scenarios that families can choose from and it requires a deeper understanding, including on cultural and social levels, and meticulous planning for the different phases to succeed in the long run.
Successions are generally longer processes and can last from five to 10 years. It is certainly not a defeat if current leaders pass on the power gradually; it means that solid planning is in place. During the process, the family can also reach a consensus on how to best balance their traditions with the innovation and fresh perspectives of the next generation, and align on the most important family matters and opportunities that the succession offers them.
Families often mention that their next-generation members do not show any interest in the businesses and their other activities. However, this may be because the elders have not proactively tried to engage them in their activities from an early age. For example, by bringing them to the factory or shop floors, showing them what the family does, and why they do it, and sharing memories and stories.
Families that opt for rigid structures to keep family members in check without an engagement and alignment process might face numerous risks that gradually play out.
Undoubtably, the most pressing aspect to consider when it comes to ensuring the longevity of family enterprises and the family members’ activities, is to keep the family united. This also means ensuring that family members are anchored, engaged, and aligned as they gradually grow in numbers and endeavours over the decades. It is also vital to keep shareholders, employees, and community members engaged on different levels to achieve long-term success for families and their communities.
Zita Nikoletta Verbényi sits on Wealth&Society’s Global Advisory Board, and is the founder and legacy aesthete at The Legacy Atelier™.
Institution: The Asian Banker, Knight Frank, Forbes
Country: China, United States
Guest: Zita Nikoletta Verbényi