China’s Richest Getting Richer Yet Face Aging, Transition

It was a good year for China’s richest 100 on the Forbes China Rich List unveiled in November. Overall, China’s 100 Richest saw their collective net worth rise to $1.48 trillion from $1.33 trillion a year earlier.  Mainland China is second only to the United States in its number of billionaires.

What’s next for this powerful group? I recently exchanged with Emily Zhao, founder of Zhanrui Family Business Service Center in Shanghai. Zhanrui coaches family businesses in China, provides inheritance planning help, and manages funds. Zhao has been a columnist for Forbes China and holds a Harvard MBA.  Excerpts follow.

Flannery: Fortunes have been volatile in the past 12 months. Internet consumer businesses are down on policy shifts, but new energy fortunes are up. What’s next?

Zhao: Not long ago, many of China’s richest made their money in real estate. Yet none of this year’s top 10 come from real estate. Instead, they made their money from domestic consumption, the Internet, and new energy. Many have an eye on global markets. The list shows the changes in China’s social and economic environment over time and how the country is becoming more of an innovator.

Looking ahead, I think those same three areas – domestic consumption, the Internet and new energy — will continue to create new wealth. Take consumer spending. China is still enjoying a “demographic dividend” in which a large labor pool and vast consumer market stimulate demand and supply at the same time. The huge population base also means strong purchasing power. 

So it makes sense this year’s richest person Nongfu Spring Chairman Zhong Shanshan comes from the consumer market and has thrived in the beverage business. Another beneficiary of the demographic dividend is the booming express delivery industry, which propelled SF Holdings’ CEO Wang Wei up to No. 10 this year. 

Flannery: What else jumps out at you this year from this year’s list?

Zhao: Technology is propelling many fortunes. Half of the top 10 people rely on the Internet for their fortune. ByteDance founder Zhang Yiming is only 38 years old, but his short video platform Douyin is a household name with a 45% market share and 680 million active users, according to iiMedia Consulting. Pinduoduo’s Colin Huang has become one of the world’s richest people from his success in third- and fourth-tier cities. That would be hard to imagine a short time ago. If you follow the United Nations, it proposed 17 global development goals in 2015 to guide global development work from 2015 to 2030; one is access to energy. Clean energy is now a benchmark of a country’s scientific and technological strength, and China is a leader, and entrepreneurs such as CATL Founder Robin Zeng ranked third this year. The global consensus toward “carbon neutrality” will create diversified development and new opportunity in the energy business.

Flannery: How are shifts from founders to next-generation leaders at older private-sector companies unfolding?

Zhao: Although China’s private-sector wealth is still mainly concentrated in the hands of business founders, it’s an unprecedented time of transition to next-generational leaders. Some 60 members of the new Forbes China Rich List are 50-59 years old, a quarter are more than 60, and eight are over 70 years old. This isn’t a young group.

In these family businesses, the trend is that the first generation is responsible for strategy and macro-level control, while the second generation is responsible for operation and management. One successful example is Country Garden and the Yang family. Yang Huiyan, the daughter of founder Yeung Kwok Keung, ranked 11th on the Forbes China Rich List. Both family and professional management are entwined within the group. When Yang Huiyan was a teenager, she is said to have attended important meetings within Country Garden; her father sent her to the United States to study marketing and logistics.

After returning from studying in the United States, Yang Huiyan served as the purchasing manager of Country Garden; as Country Garden was listed on the Hong Kong Stock Exchange in 2017, Yang Guoqiang transferred his shares to Yang Huiyan. Yeung has hired professional managers to assist Country Garden’s corporate governance to ensure that Yang Huiyan can fully adapt to her role as an executive director. This is the integration stage. Family businesses experience the inheritance stage in the end. The founder of the company retreats behind the scenes and coordinates the relationship between the managers and the successors. Yeung has not completely withdrawn from the company yet, but he is constantly advancing the transition.

Flannery: What other trends to you expect in the next few years?

Zhao:  I expect businesses will look to grow globally.  China’s demographic dividend has already faced an inflection point. According to QuestMobile data, China’s mobile Internet users have entered a long-term user growth stall with over one billion users. The search for new user growth has also become important for Chinese Internet companies. In the future, Chinese companies should set their sights on overseas

markets and actively seek new ways of development. For example, ByteDance’s overseas version of TikTok has become popular all over the world, and SF Express – after thriving at home — has also begun to focus more on overseas business. Chinese enterprises will increasingly shift their strategic goals to internationalization and new opportunities, in my view.

Beyond that, we’ll see more investment capital following into technology areas. Policy support is there. Chinese companies will utilize capital to strengthen their R&D and innovation capabilities, and improve their ability to attract and train talent; even more important, they will better cooperate with investors. Policy makers are likely to support high-tech industrial research.

Finally, I think family business structures will necessarily evolve in a healthy way. China’s private sector boom started later than overseas, and most mainland companies born after the 1980s have not yet established a complete family business management system. Many businesses haven’t navigated family transitions. Failed business and investment strategies and risk controls can wipe out the hard work of a founder. Company job assignments, decision-making power and the rules for managing those need to be addressed. One case I’ve looked at is the “Lee Kum Kee” family of Hong Kong, which is a member of the Forbes Hong Kong List. The family has done particularly well with a strict “family charter” to help. The Lee case tells us that family wealth can only continue to accumulate if a comprehensive family governance policy is formulated and the founders set suitable family succession programs.

For related posts:

China’s Richest 2021: Collective Wealth Climbs To Nearly $1.5 Trillion Amid Tumult

What Decoupling? China Is Deepening The Interdependence Of Capital Markets

Chinese Billionaires Getting Richest With Clean Energy Businesses

@rflannerychina