Economy

How China's Super-Rich Are Managing Their Wealth For Future Generations

Who gets a seat at the banquet?
Who gets a seat at the banquet?
Hu Zhongbin

BEIJING — In October, a tour group of 20 of China’s top tycoons will be paying a different kind of luxury visit to America. The tour is organized by Gopher Asset, an asset management firm, and the aim is for these Chinese super-rich to investigate how Single Family Offices (SFOs) operate in the United States.

A SFO is a private company that manages investments and trusts for very wealthy individuals or families. According to the latest Wealth-X and UBS World Ultra Wealth Report 2013, China has more than 10,000 individuals whose net worth is over $30 million. As the number of ultra-rich grows, and the first generation of entrepreneurs starts to age, the governance of family wealth is an increasing concern.

Seeing a huge demand in this booming market, several wealth management institutions — China Merchants Bank, Ping An Trust and Gopher Asset, among them — have been founded in the past year offering family-office services, mostly in the form of offshore trusts.

Rich men worries

Wang (not his real name) is a 55-year-old entrepreneur. Apart from his legal wife in China, with whom he has a 25-year-old son, Wang also has a second “wife” in America with whom he has a daughter. Wang does not want to get divorced from his wife, nor does he want to give up “the best of both worlds,” as he puts it. Obviously, he realizes that if he doesn’t handle the marital issue properly, every member of the family may end up in a battle for the family wealth.

Following the advice of Rich Link Capital, an international alternative asset fund manager, Wang made a trust arrangement of his assets and assigned them proportionally to each of four family members to guarantee their lives and studies. “The scale of his trust assets is around 500 million RMB ($81.7 million),” says Cheng Jinqiao, chairman of Rich Link Capital. “Everybody has got some share of the cash, some of the properties as well as the company equity.”

Wang has set up his trust offshore in Hong Kong. This means that Wang, as a settler or owner of assets, transfers his assets to a trustee. In turn, the trustee will manage, dispose of and use the assets in accordance with the trust program, and he designates beneficiaries, usually the settler’s family.

Examples such as Wang’s, in which any marital and family changes can make a substantial impact on a rich man’s wealth, are not at all uncommon, Cheng says.

For instance, the inappropriate timing of the divorce of Wang Wei, the founder of Tudou, China’s big video-sharing website, caused a setback in the company’s application for a stock market listing in the United States in 2010. “Had Wang Wei set up a family trust before submitting his listing application, China’s online video industry would probably be very different today,” says Huang Wenhong, managing director of Portcullis TrustNet (PTN), Asia's largest independent trust group.

“Learning from the Wang Wei case, when a venture capital fund invests in a company ready for an overseas listing, it usually makes the request that the founder set up a family trust first so as to avoid any change in marital status having an impact on corporate control,” Huang explains.

Three generations before the cash runs out

Apart from worries over their own marital or family changes, how to successfully pass on the family business and fortune is another very problematic issue. “Every business aims to be sustainable and become a 100-year-old name. However, the harsh reality is, as the Chinese put it, wealth never lasts more than three generations,” says Yin Mingshan, who heads the Lifan Group, which specializes in automobile and motorcycles and is one of China’s top 500 enterprises.

In her constant contact with China’s wealthy families, UBS Wealth Management Director Guo Danyuan finds that many of these tycoons’ offspring have no wish to take over their parents’ business.

Unlike those from Western business families, the typical Chinese mogul doesn’t have a long business history or background. They mostly accumulated their wealth in the past 20 to 30 years. The majority of them are engaged in traditional sectors, and are still working very hard. Also, they tend to have one-child families, and their children often have Western university and post-graduate educations, giving them a very different career outlook, business philosophy and value system than their parents. They are therefore less likely to want to carry on the family business, Huang Wenhong of PTN notes.

China’s family offices have so far remained very low-key. Entrepreneurs who have set up family trust or family offices — Pan Shiyi, China’s largest office real estate developer, and the automobile magnate Yin Mingshan, among them — are mum. Meanwhile, the financial outfits busy promoting family office services regard client information as highly confidential.

But what is clear is that China’s growing set of high-net-worth individuals (HNWI) is arousing much interest among family wealth management professionals. In September, the International Family Office Association also set up an office in Beijing.

The “2013 China Private Wealth Report,” jointly issued by Bain & Company and China Merchants Bank, makes note of the rising interest in family trusts. Not only have more than 50% of wealthy families talked about it, but more than 15% of them are actually in the process of establishing one.

“Family foundations are a new idea in China,” notes Scott MacDonald, executive director and founder of the International Family Office Association. “Since China doesn’t allow the free flow of foreign capital, there are still obstacles in achieving a family foundation’s global asset allocation.”

MacDonald also points out that since trust institutions aren’t yet legally protected in China, families can only set up their trusts overseas.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
Geopolitics

How Thailand's Lèse-Majesté Law Is Used To Stifle All Protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

Pro-Democracy protest at The Criminal Court in Bangkok, Thailand

Laura Valentina Cortés Sierra

"We need to reform the institution of the monarchy in Thailand. It is the root of the problem." Those words, from Thai student activist Juthatip Sirikan, are a clear expression of the growing youth-led movement that is challenging the legitimacy of the government and demanding deep political changes in the Southeast Asian nation. Yet those very same words could also send Sirikan to jail.

Thailand's Criminal Code 'Lèse-Majesté' Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family.


But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

The recent report 'Second Wave: The Return of Lèse-Majesté in Thailand', documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations."

Criticism of any 'royal project'

The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. Nineteen of them served jail time. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

Juthatip Sirikan explains that the law is now being applied in such a broad way that people are not allowed to question government budgets and expenditure if they have any relationship with the royal family, which stifles criticism of the most basic government decision-making since there are an estimated 5,000 ongoing "royal" projects. "Article 112 of lèse-majesté could be the key (factor) in Thailand's political problems" the young activist argues.

In 2020 the Move Forward opposition party questioned royal spending paid by government departments, including nearly 3 billion baht (89,874,174 USD) from the Defense Ministry and Thai police for royal security, and 7 billion baht budgeted for royal development projects, as well as 38 planes and helicopters for the monarchy. Previously, on June 16, 2018, it was revealed that Thailand's Crown Property Bureau transferred its entire portfolio to the new King Maha Vajiralongkorn.

photo of graffiti of 112 crossed out on sidewalk

Protestors In Bangkok Call For Political Prisoner Release

Peerapon Boonyakiat/SOPA Images via ZUMA Wire

Freedom of speech at stake

"Article 112 shuts down all freedom of speech in this country", says Sirikan. "Even the political parties fear to touch the subject, so it blocks most things. This country cannot move anywhere if we still have this law."

The student activist herself was charged with lèse-majesté in September 2020, after simply citing a list of public documents that refer to royal family expenditure. Sirikan comes from a family that has faced the consequences of decades of political repression. Her grandfather, Tiang Sirikhan was a journalist and politician who openly protested against Thailand's involvement in World War II. He was accused of being a Communist and abducted in 1952. According to Sirikhan's family, he was killed by the state.

The new report was conducted by The International Federation for Human Rights (FIDH), Thai Lawyer for Human Rights (TLHR), and Internet Law Reform Dialogue (iLaw). It accuses Thai authorities of an increasingly broad interpretation of Article 112, to the point of "absurdity," including charges against people for criticizing the government's COVID-19 vaccine management, wearing crop tops, insulting the previous monarch, or quoting a United Nations statement about Article 112.

Juthatip Sirikan speaks in front of democracy monument.

Shift to social media

While in the past the Article was only used against people who spoke about the royals, it's now being used as an alibi for more general political repression — which has also spurred more open campaigning to abolish it. Sirikan recounts recent cases of police charging people for spreading paint near the picture of the king during a protest, or even just for having a picture of the king as phone wallpaper.

The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them.

Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind. In October 2020, Twitter took down 926 accounts, linked to the army and the government, which promoted themselves and attacked political opposition, and this June, Google removed two Maps with pictures, names, and addresses, of more than 400 people who were accused of insulting the Thai monarchy. "They are trying to control the internet as well," Sirikan says. "They are trying to censor every content that they find a threat".

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
THE LATEST
FOCUS
TRENDING TOPICS
MOST READ