Family businesses in China have no heirs apparent

Dalian Wanda Group chairman Wang Jianlin has just one child, but his 27-year-old son is a notorious playboy who does not seem prepared to take up his birthright leading the conglomerate.
Dalian Wanda Group chairman Wang Jianlin has just one child, but his 27-year-old son is a notorious playboy who does not seem prepared to take up his birthright leading the conglomerate.PHOTO: BLOOMBERG

WANG Jianlin, the chairman of Dalian Wanda Group and China's richest man, has just one child, 27-year-old Wang Sicong. That would seem to make the question of succession at the privately held Wanda a simple matter.

The problem is, the younger Wang - a notorious playboy with an obnoxious Sina Weibo social media feed that he keeps on behalf of his dog (including photos of the pet wearing gold Apple Watch Editions) - doesn't seem prepared to take up his birthright leading the conglomerate, which develops commercial property and owns AMC theatres.

In 2012, the elder Wang said of his shiftless son: "If he can make himself accepted by everyone (at Wanda) in the next five to eight years, he will succeed me. If he doesn't have that ability, he won't."

Wang Sicong is part of a broader challenge facing the Chinese government. In a speech in mid-May, President Xi Jinping turned his attention to the generation of pleasure-seeking business scions - or "fuerdai", as they are known - and called for a national effort to "make them appreciate where money comes from".

But tempering the habits of China's young and rich, after a lifetime spent indulging their impulses, won't be easy. And, unfortunately, the millions of family businesses that comprise the backbone of the Chinese economy don't have a clear backup plan.

The fuerdai don't just pose an economic problem. They also threaten China's social fabric.

Their extravagance provokes the country's less fortunate (complaints about fuerdai spending habits are a constant subject on Chinese social media) and offends the Communist Party's value system, which emphasises public modesty, including in matters of wealth. Last week, Chinese state media published a message from the United Front Work Department, an agency tasked with promoting the party's ethic among non-members, complaining about China's wealthy heirs. Fuerdai "know only how to show off their wealth, but don't know how to create wealth", it noted. "If this behaviour becomes a common problem for family-run businesses and makes all private entrepreneurs look bad, or affects social confidence towards private businesses, it will no longer be simply an economic problem."

In truth, the economic problem is a large enough challenge on its own. More than half of China's gross domestic product is generated by private companies and, according to a 2010 Chinese government survey, 85.4 per cent of China's private companies are family businesses in which an individual or family controls at least 50 per cent of the firm. Over the next five to 10 years, roughly three-quarters of those family companies are expected to face a leadership succession.

The most pressing question isn't whether the fuerdai are capable of taking over the executive suite, but whether they even want to. Fortune Generation, a magazine published by an organisation of children of wealthy entrepreneurs, reports that 65 per cent of the group's members who are part of manufacturing families aren't interested in continuing the family's line of work.

Likewise, a 2011 study from coastal Zhejiang province, traditionally a hotbed of Chinese entrepreneurialism, revealed that only 35 per cent of the children of business owners had any interest in taking those businesses over.

One of the biggest reasons for this divergence is generational friction within families. Many of China's first-generation entrepreneurs are influenced by their experience of China's mid-century upheavals, prior to the country's shift towards a market economy.

The worldview of the fuerdai, by contrast, has been shaped by wealth, privilege, and, quite often, overseas education that lends them a different perspective on the Chinese economy. In China, it's common to meet young Chinese who reject a life in business because they "don't like dealing with the government" - a thin euphemism for the graft that many Chinese entrepreneurs price into their transactions.

Elsewhere in the world, family-owned businesses deal with these kinds of succession problems by seeking out professional management. But that's an unlikely option in China, where scepticism of outsiders is firmly rooted in the culture's business traditions. (The Harvard Business Review recently reported that nearly three-quarters of all companies in Taiwan, and 69 per cent in Hong Kong, pass down to family heirs.) It doesn't help matters that China has a serious dearth of well-trained professional managers.

The Chinese government would be wise to try expanding the country's ranks of professional business leaders. But for now Beijing seems focused on persuading fuerdai to simply lead more productive lives.

Earlier this month, Chinese state media reported on a government-run seminar for 70 wealthy scions, average age 27, one-third of whom had "just returned from overseas study". In addition to receiving instruction in management, these fuerdai were drilled on traditional Confucian virtues, including "filial piety". It will be years before anyone knows if the instruction improved their capacity and desire to manage businesses. At the moment the government appears happy to keep them out of trouble.

BLOOMBERG VIEW

A version of this article appeared in the print edition of The Straits Times on June 23, 2015, with the headline 'Family businesses in China have no heirs apparent'. Print Edition | Subscribe