China's Second Generation: Will the 'Fuerdai' Continue to Run the Family Business?

Corporate Finance & Restructuring

April 26, 2017

Chess

Family-run businesses in China constitute an incredibly important part of the national economy. Private enterprises accounted for about 86 percent of the Chinese market in 2015,1 with most of these firms being classified as family-run businesses, this group dominates the country’s corporate landscape, playing a huge role in employment, job creation and the generation of gross domestic product.

Economic liberalisation in the late-1970s provided the catalyst for China’s entrepreneurs to grasp new opportunities. Many leveraged this era of market reforms and rapid growth in the Chinese market to start-up and grow their own businesses. However, as China’s first-generation of entrepreneurs now hit their 50s and 60s and look to retire, questions around leadership transition and succession have raised many new challenges.

Succession planning for Chinese family businesses has always been a contentious matter. Having worked incredibly hard to build their own business, first-generation entrepreneurs in China express an overwhelming desire to maintain control within the family — even as concerns on whether their successors have the willingness and experience to manage the business begin to dominate the conversation. This reluctance to hand over management to outside professional managers saw a high-profile turn after Wang Jianlin, founder and chairman of Dalian Wanda Group (and currently China’s wealthiest individual), declared his intentions to pass over the reins of his business empire to an external professional manager. Dalian Wanda Group is China's most prominent real estate developer as well as the world's largest movie theatre operator.

In a recent address to his company, Wang was quoted saying: “I have asked my son about the succession plan, and he said he does not want to live a life like mine,” He then went on to say: “Perhaps young people have their own quests and priorities. Probably it will be better to hand over to professional managers and have us sit on the board and see them run the company.”2


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Ken Fung

Senior Managing Director