What keeps China’s tycoons awake at night – Asia Times

What keeps China's tycoons awake at night - Asia Times

I recently had the chance to reconnect with former colleagues and learn about potential business possibilities in post-Covid China while attending the 40th anniversary meeting of the Tsinghua University School of Economics and Management.

Meetings with local business leaders revealed three urgent needs: expanding internationally, succession planning for home businesses, and asset diversification. These issues are different but inseparably linked, having a significant impact on and strengthening one another.

Growing Abroad

One of the most important changes I’ve noticed is how much Chinese companies are looking to expand internationally.

This upward trend is primarily fueled by the financial downturn in China. Chinese firms, recently material with the huge potential of their house market, are now actively exploring fresh destinations, as private growth rates fall below the strong 6- 8 % seen in the past two decades.

Standard companies, especially labor- and resource-intensive industries like textiles and cheap products, must look for new markets that match the demand profiles of their era as China moves to a different stage of economic growth.

Emerging markets are especially appealing because of their high and growing demand and relatively lower cost outposts in comparison to China. Moreover, the rise in mercantilist measures has prompted Taiwanese firms to modify their supply chains to lessen the impact of stringent taxes.

Leading companies in the Chinese business, such as Huawei and BYD, have been at the frontline of this trend, quickly gaining ground in areas in Southeast Asia, Africa, and Latin America. And then, this trend is even gaining speed among smaller businesses.

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 issues

Over the past several decades, China’s rapid financial transformation has resulted in the establishment of numerous family-owned enterprises.

Many of these companies are now aiming to pass the baton to the next generation as the nation celebrates 50 years since the tremendous economic opening.

Foreign business owners are frequently hesitant to cede control to specialized managers, preferring to keep the enterprise in the family. Contrary to their Western counterparts.

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. In light of this circumstance, the emphasis on maintaining community control complicates the transition process.

Take, for example, popular crystal company Fuyao Glass. The company’s dynasty took years to come, with Cao De Wang, the chairman, convinced about handing the ropes to his youngest son, Cao Hui.

Also, Country Garden leader Yang Guoqiang’s son is the eldest child Yang Huiyan, Wahaha creator Zong Qinghou’s successor is the only child Zong Fuli.

Consulting companies like McKinsey and BCG, which have a wealth of experience with European family businesses, encounter distinct difficulties when advising Chinese customers.

A customized approach that respects cultural differences and ensures a smooth move is required because the owners ‘ desire to remain important and their focus on reputation are both required.

Diversifying elsewhere

The growth of property outside of China is the next important trend.

By spreading their assets globally and beyond their home business, business owners are increasingly looking to protect their money. This pattern is influenced by a number of variables.

Second, the current state of the Chinese economy has caused asset prices to rise, leading business owners to look for safer and more robust investment opportunities worldwide.

Their main assets being concentrated in China and the home business, which goes against regular diversification wisdom.

In contrast, geopolitical tensions, especially in the Taiwan Strait, have further fueled this push for growth. Business users in places like Fujian and Zhejiang are especially concerned about possible problems and their financial and business ills.

Finally, some company officials are looking to retire comfortably in lower-cost nations where their money may provide a much higher standard of living without the fierce competition and higher costs that characterize China.

Sleepless corporate nights

Significant strategic adjustments are being made to the Chinese business community in response to domestic and international challenges.

Their current strategies are primarily driven by their desire to expand overseas, navigate complex generational transitions, and diversify assets globally.

The implications of these demands are profound. The rise in Chinese businesses looking to invest and run their operations abroad could result in increased competition as well as new opportunities for partnerships and innovation for global markets.

Understanding these motivations can aid policymakers in developing strategies that attract Chinese investment while keeping domestic interests in mind.

Finally, it will be crucial for consultants and advisors to develop strategies that support Chinese businesses’ successful transitions and expansions in terms of their specific cultural and economic contexts.

The changing needs of the Chinese business community reflect the wider economic and political shifts that are occurring 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&nbsp, University and is accredited in business&nbsp, Chinese&nbsp, translation.