A quiet revolution is sweeping across China’s rich elite.
The ultra-affluent, who belong predominantly to the first generation of wealth creators, are reaching retirement and the ends of their lives, resulting in a massive intergenerational wealth transfer in China that holds immense potential for the luxury goods and services sector.
“The sheer volume of wealth transferring to younger generations creates a massive customer base with significant spending power. This translates to increased demand for high-end goods, services, and experiences across various categories,” says Michael J. Oliver, co-founder of Global Partnership Family Offices (GPFO), a network of private wealth management advisory entities that serve ultra-high-net-worth individuals.
Changing of the guard#
Almost all billionaires (98 percent) in mainland China are self-made, according to UBS’ Billionaire Ambitions Report 2023. The country’s first generation of entrepreneurs, who found success under China’s reformed economic policies launched in 1978, are preparing to pass on their companies, and fortunes, to their children.
Chinese heirs aged under 40 from at least 11 families will soon control $120 billion, according to the Bloomberg Billionaires Index.
The wealth transfer to a younger generation will be engineered to ensure continuity, but it will also likely result in changing risk appetites and priorities, with implications for asset and wealth management.
Many of these heirs were educated in the UK and the US and are more open-minded about consumption and investing, including philanthropy and impact investing, than the preceding generation.
“As China undergoes its generational wealth transfer, a fascinating dynamic emerges: a move from the control-oriented investment philosophies of first-generation wealth creators to the allocator-based approaches favored by their Western-educated successors,” says Oliver.
The scale and scope of generational wealth transfer will rapidly expand.
According to the 2022 Chinese Family Office Industry Trends Report, it is estimated that $3 trillion of wealth will pass to the next generation within 10 years, increasing to $8 trillion within 20 years.
An estimated $3 trillion of wealth will pass to the next generation in China within 10 years.
This could provide a massive boost to the luxury goods and services sectors. A 2022 PwC survey reports that only 6 percent of family-owned enterprises in the Chinese mainland are run by China’s third generation of entrepreneurs.
Young blood#
Millennial inheritors, most of whom grew up rich, compared to their parents who lived through the Cultural Revolution and Great Leap Forward, will be empowered to both spend and invest their newfound wealth.
For example, one area that could potentially benefit is residential real estate in Beijing, which has become an increasingly attractive location for the wealthy’s second homes.
“Branded residences currently have only a limited presence in China, though there exists significant potential given the robust performance of luxury sales,” says James Macdonald, Head of Savills Research China.
Moreover, the next generation’s lifestyle attitudes will be more closely aligned with global HNWI trends. For example, they are more likely to see private jets and superyachts as luxury assets.
A slowing Chinese economy and last year’s Evergrande collapse may be sending tremors through luxury company boardrooms. However, there is room for optimism. The luxury industry stands to gain from the next generation’s inherited wealth in China.
However, luxury brands also need to consider how to tailor their product and service offerings to a younger generation of HNWIs. As Oliver says, “The adage of money screams, wealth whispers is becoming ingrained in the next generation of wealth owners.”
Glyn Atwal is an associate professor at France’s Burgundy School of Business. He is co-author of ‘Luxury Brands in China and India’ (Palgrave Macmillan).