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Xi’s corruption probe: wealth transfer takes a hit

Xi’s corruption probe: wealth transfer takes a hit

President Xi Jinping’s anti-corruption campaign which looks into the misuse of social networking in China, is having far more wide-ranging effects, especially on how elderly businessmen are planning their wealth transfer.

Chinese patriarchs are finding it difficult to pass on their social networks, once seen as a necessary component to running a successful business in China, to the next generation to help them in their ventures.

Historically, wealthy Chinese have relied on connections like politicians, entrepreneurs and local authorities to carry forward business plans. However, with Xi’s anti-corruption drive, the means of building these networks, such as gift-giving, has suffered a serious blowback.

What’s more, it has also affected the political standing of China’s ultra-rich. The number of billionaires attending China’s 13th National People’s Congress in March fell to 152 from 209 in the last parliament, data from the Hurun Report showed.

‘Social capital is not that easy to pass on to the next generation, even in the best of times,’ said Roger King, founder and director of Tanoto Center for Asian Family Business and Entrepreneurship Studies at Hong Kong University of Science and Technology.

‘So given the environment today, it’s really very difficult. I would seriously think about it – how can I convert my business into cash where I can pass the cash onto the next generation,’ King told Citywire Asia.

King is now conducting a programme for next generation business owners on how to monetise their businesses in the event they are unable to take on the responsibility.

The potential successors of Chinese family businesses are already infamous for not wanting to join the family business, and this is just one more reason to add to their reluctance in taking over the reins.

Rich children, many of whom are educated in the West, often see their family businesses as part of ‘sunset industries’, traditional sectors such as manufacturing that are going to play a smaller role in China’s economy, and hence, want little to do with it.

As a result, these patriarchs are looking to build new networks and capitalise on the next wave of wealth creation in technology-related businesses instead, adds David Chang, CEO of ShouShan Family Wealth Advisors.

‘Their human network isn’t viable anymore. Five or 10 years ago, in China, you would have had to have connections. Now it’s a bad word,’ he told Citywire Asia.

This, in turn, has put succession plans on hold in many families, affecting the desire to set up family offices. The mentality continues to be of wealth creation rather than wealth preservation, he says.

Chang’s firm currently works with 12 families in China, with wealth ranging from $20 million to $100 million.

‘Now, they and their next generation are looking to build new networks,’ he said. ‘That’s why the first generation will continue to carry their baton even though they are growing old, because they are worried that the next generation will not be able to take over.’

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