In the Second Generation
China’s future prosperity is considered in connection with the stock market, domestic demand, and demography. All three issues converge and are sharpened in the ‘fuerdai’ phenomenon, the spoiled heirs of the country’s super-rich businessmen.
Wang Jianlin never poses the question of what to leave to the next generation as his legacy. The richest man in China, according to Forbes magazine, has a fortune of $24.2 billion. He owns the Dalian Wanda Group, a business empire that controls over 200 shopping malls, hypermarkets, and luxury hotels. However, the businessman may face a problem when it comes time to transfer his accumulated wealth.
At first glance, the situation seems clear and simple: Wang Jianlin has only one son – 27-year-old Wang Sicong. However, the heir – known in China as a tabloid darling – has a dubious reputation. He recently provoked a wave of outrage by posting a picture of his dog on social media wearing a gold Apple Watch on each of its paws. Many, including Wang Jianlin himself, have serious doubts as to whether his son should ever lead the Dalian Wanda Group. In 2012, the businessman stated that unless Wang Sicong was able to earn the trust and respect of the gigantic company’s employees, he would not become the successor.
The billionaire’s son is a typical representative of the ‘fuerdai’ generation whose behaviour has been subject to sharp criticism in China.
Private welfare in China
As a result of economic reforms launched in the late 1970s by Deng Xiaoping, China has formed an impressive and sizable upper class. According to Capgemini consulting firm data, there are about 900,000 people today who can be counted among the High Net Worth Individuals (HNWI) category, that is, those with more than $1 million in invested assets. In 2009, there were only 470,000 of them, which means that the number of millionaires in China has almost doubled over the past five years. Their combined wealth is estimated at $4.5 trillion. Furthermore, six Chinese business men are among Forbes hundred richest people in the world list. Entrepreneurs such as Jack Ma are at the forefront of the digital revolution, transforming the global economy in front of our eyes. According to forecasts by Wealthinsight research company, China’s HNWI population will reach 2.2 million people in 2019 and their combined wealth will be about $10 trillion. About 90% of Chinese billionaires fit into the self-made category (Wealth-X data). In the foreseeable future, these people will have to face the inevitable question of how to pass their acquired wealth onto their children. However, as with Wang Jianlin, many of these parents doubt the readiness of their potential successors to become reliable owners and managers of such businesses.
It is common to call children of Chinese High Net Worth Individuals and Ultra High Net Worth Individuals ‘fuerdai’, which can be translated as ‘rich in second generation’. The term has a rather negative connotation; in the public mind, ‘fuerdai’ is firmly associated with hedonistic lifestyles, consumerist values, as well as a public demonstration of unprecedented luxury.
One can find numerous photos on the Internet in which the children of Chinese millionaires and billionaires are posing against the backdrop of expensive cars, stacks of banknotes, and jewelry. For example, a couple of years ago, the attention of Internet users was brought to photos of the 22-year-old daughter of a major Chinese entrepreneur, whose whose assets are primarily concentrated in the insurance business. In these photos, his daughter is surrounded by top models, shopping in extremely expensive boutiques, boarding a private jet, and standing at the steering wheel of a yacht that even the richest and most sophisticated sailing lovers would envy. For a more accurate picture of the situation, one may recall another story: In the spring of 2013, international media spread the news that members of a Chinese sports car club – rumoured to include children of many leading Chinese businessmen and officials – were involved in organizing a private party on a yacht. According to information that made its way into newspapers, the party became a concentration of unprecedented laxity and overindulgence.
According to an expert from the Institute of Emerging Market Studies of Skolkovo Business School, Elena Sushkova, the situation is exacerbated by the fact that the lifestyles that children of Chinese HNWIs lead contradict the officially declared party line. In addition, China currently faces a serious problem of social inequality (notably the gap between the rich and the poor, and between coastal and central provinces). Therefore, the Communist Party fears the worsening of social contradictions in the poorer provinces, where the topic of ‘fuerdai’ is perceived in a particularly distressed manner. The problem must also be considered in the broader context of the anti-corruption campaign, which was launched shortly after Xi Jinping’s coming to power.
Finally, the behaviour and lifestyle of China’s golden youth is receiving an additional undertone in light of wealth transfer issues; ‘fuerdai’ generation representatives are, in fact, potential business successors. Despite the special role that the state plays in the Chinese economy, two-thirds of China’s GDP is generated by private companies; according to official Chinese statistics, there are about 40 million private enterprises, accounting for 60% of GDP. That said, according to Chinese authorities themselves, 85% of private companies in China are family-owned.
Situation under control
A key role in the transfer of wealth and business is played by the professional, intellectual, spiritual, and emotional preparation of successors. However, the education of the next generation is an internal family matter. Yet in China, it seems that the grooming of the next generation of business leaders is becoming a task of national importance.
It was announced in June this year that the United Front Work Department (an agency of the Central Committee of the Communist Party of China, which is mainly responsible for relations with Taiwan and Hong Kong) will guide China’s golden youth to the path of “patriotism, innovation, devotion to the ideas of lawfulness and decency”. Around the same time, Xi Jinping stated at a party meeting that children of Chinese capital owners must give up the hedonistic lifestyle, think about the origin of their wealth, and become homeland-loving, law-abiding, and hard-working citizens.
A week after the announcement, state media reported on a series of trainings for 70 children of Chinese billionaires in the Fujian province. The aim of these events (seemingly organised by the party) was to instil traditional Chinese culture and a sense of social responsibility in the children of large businessmen. It is noteworthy that tardiness resulted in severe penalties.
Of course, it may seem that the intrusion of the state in an area as sensitive as the education of children is a measure of excessive nature. But the rhetoric of Chinese authorities demonstrates that the preparation of the next generation of capital and business owners is becoming Beijing’s top priority. In all probability, Chinese leadership is aware that the economic stability of the country in the long term will depend largely on the degree of competence of successors.
The problem of succession is relevant to many of China’s neighbours. For example, in Russia today, more than 90% of private capital is in the hands of the first generation, while in recent years a clear trend to transfer wealth to successors has been forming.
It is important to focus on this task in time, if only because an urgent ‘surgical intervention’ will otherwise be needed in the form of measures taken at the highest government levels. Doctors always say that to avoid a long and often painful treatment, one should carry out timely preventive maintenance. In this case, we are talking about the study of global best practices for succession planning and their adaptation to local realities, as well as consulting and informing the owners of capital and their families about effective ways to transfer wealth to younger generations.