On a recent trip to China for the Tsinghua University School of Economics and Management’s 40th-anniversary reunion, I had the opportunity to reconnect with old classmates and explore potential business opportunities in post-Covid China.
Conversations with local business leaders revealed three pressing demands: expanding overseas, family business succession and diversifying assets. Those concerns are distinct yet mutually related, influencing and reinforcing each other in profound ways.
Expanding Overseas
One of the most significant trends I observed is the increasing drive among Chinese businesses to expand internationally.
The economic slowdown in China is a major catalyst for this outward drive. Chinese firms, previously content with the vast potential of their home market, are now actively exploring new destinations, as domestic growth rates fall below the robust 6-8% seen in the past two decades.
As China transitions to a different stage of economic development, traditional industries, particularly labor- and resource-intensive sectors like textiles and plastic products, must seek new markets that mirror the demand profiles of their heyday.
Emerging markets are particularly attractive due to their massive and growing demand, as well as lower cost bases compared to China. Additionally, the rise in protectionist measures globally has prompted Chinese companies to reconfigure their supply chains to mitigate the impact of hefty tariffs.
Chinese market leaders like Huawei and BYD have been at the forefront of this trend, rapidly expanding their presence in markets across Southeast Asia, Africa and Latin America. And now, this trend is also gaining momentum among smaller companies.
As evident in the data, China’s non-financial outbound direct investment (ODI) came in at US$34.2 billion in the first quarter of this year, up 12.5% from a year earlier and the highest level in eight years.
Most notably, ODI to the Association of Southeast Asian Nations (ASEAN) and European Union spiked 36.7% and 34.5% year on year, according to the Ministry of Commerce.
Family succession challenges
China’s rapid economic transformation over the past few decades has led to the creation of numerous family-owned businesses.
As the country marks over half a century since the great economic opening, many of these entrepreneurs are now looking to pass the baton to the next generation.
Unlike their Western counterparts, Chinese business owners are often reluctant to relinquish control to professional managers, preferring to keep the business within the family.
A survey of 182 Chinese entrepreneurs revealed that among “creative generation” entrepreneurs with an average age of over 52, 82% of their children were “unwilling” or “not active” to take over. Against this backdrop, the insistence on maintaining family control adds complexity to the transition process.
Take, for instance, prominent glass manufacturer Fuyao Glass. The company’s succession was decades in the making, with founder Cao De Wang adamant on handing over the reins to his eldest son, Cao Hui.
Similarly, Country Garden founder Yang Guoqiang’s successor is the eldest daughter Yang Huiyan; Wahaha founder Zong Qinghou’s successor is the only daughter Zong Fuli.
Consulting firms like McKinsey and BCG, which have extensive experience with Western family businesses, face unique challenges when advising Chinese clients.
The focus on legacy, combined with the founders’ desire to remain influential, necessitates a tailored approach that respects cultural nuances while ensuring a smooth transition.
Diversifying overseas
The third significant trend is the diversification of assets outside of China.
Business owners are increasingly looking to safeguard their wealth by spreading their investments globally and beyond their family business. This trend is driven by several factors.
First, the current economic environment in China has led to asset deflation, prompting business owners to seek safer and more stable investment opportunities abroad.
By having most of their assets concentrated in China and in the family business contradicts conventional diversification wisdom.
In addition, geopolitical tensions, particularly in the Taiwan Straits, have further fueled this drive for diversification. Business owners in regions like Fujian and Zhejiang are particularly anxious about potential conflicts and the impact on their assets and businesses.
Finally, some business leaders are looking to retire comfortably in lower-cost countries, where their wealth can provide a much higher standard of living without the intense competition and high costs prevalent in China.
Sleepless corporate nights
The Chinese business community is undergoing significant strategic shifts in response to domestic and international challenges.
The demand to expand overseas, navigate complex generational transitions and diversify assets globally are central to their current strategies.
The implications of these demands are profound. For global markets, the influx of Chinese businesses looking to invest and operate abroad could mean increased competition but also new opportunities for partnerships and innovation.
For policymakers, understanding these motivations can help in crafting strategies that attract Chinese investment while balancing domestic interests.
Finally, for consultants and advisors, tailoring approaches to the unique cultural and economic contexts of Chinese businesses will be crucial in supporting their successful transitions and expansions.
The evolving demands of the Chinese business community reflect the broader economic and geopolitical shifts within China and the global economy.
By understanding and addressing these demands, stakeholders from governments, business partners, competitors, bankers to investors can better navigate the complexities of this dynamic landscape.
Kok How Lee has over 15 years of experience in strategic roles at the Singapore MTI, EDB, BHP, and China Fortune Land Development International. He holds an EMBA degree from Tsinghua University and is accredited in business Chinese translation.
