China’s wealthy are looking for business investment abroad

BEIJING — China’s wealthy are increasingly looking for ways to move capital outside the mainland to pursue business opportunities rather than just chasing investment returns, according to asset managers and consultants.

This year, there has been a “very significant” trend of inquiries from Chinese family offices looking to acquire smaller businesses in Japan, said Ryota Kadogaki, co-founder and global CEO of Monolith, an office consulting firm. family from Japan.

“I’m also studying Chinese and thinking about hiring Chinese speakers in my company right now,” he said, noting that slower growth in China and a weaker Japanese yen are fueling increased interest. Even with the recent strengthening to around 20 yen against the Chinese yuan, it is still weaker than the 15 level seen in 2020.

Mainland Chinese investors increased their non-financial direct investment abroad by 16.2 percent to the equivalent of $83.55 billion in the January-July period, according to the Ministry of Commerce. It said the investments covered more than 6,100 businesses in 152 countries and regions.

“Most of our clients are entrepreneurs with roots in China who are looking to further globalize,” Grant Pan, CFO of China-based wealth management firm Noah Holdings, told CNBC. “Obviously they are at least keeping their eyes open for opportunities for their businesses around the world. Obviously there is a downward pressure on domestic markets for many industries.”

“Many of our customers seem to be busier than before,” he said. “As they explore new markets, they travel more often, which gives them more or less a better perspective of global allocation.”

Noah Holdings said the number of its overseas registered customers rose 23 percent from a year ago to nearly 16,800 at the end of June. The company’s active overseas customers grew by nearly 63% year-on-year to 3,244.

Overseas assets under management rose nearly 15% to $5.4 billion from a year earlier, while assets under management in mainland China fell more than 6% to $15.8 billion, according to Noah’s quarterly earnings report.

Mainland China maintains strict capital controls, with an official limit of US$50,000 in overseas currency per year. That means wealthy Chinese have long sought alternative ways to grow their wealth outside the country.

Kadogaki noted that buying foreign companies is a way for Chinese investors to move assets overseas. He also shared examples of how a fund investing in a Chinese technology company might now look to acquire a retail store in Japan to expand potential revenue.

In June 2023, Kadogaki said his company began working with Canopy, a Singaporean wealth management software company. working with many China-related funds to help them locate in Japan. “We can be a gateway for their customers to invest in Japan,” he said.

Right now, Canopy says its system supports English, Simplified and Traditional Chinese, and German. The company claims to work with more than 300 custodians with more than $160 billion in assets under report.

“We usually deal with professionals who help manage money for wealth owners,” said Mu Chen, chief executive at Canopy. “What we’re hearing from them is that the fastest growth in Chinese customer interest (occurred) in the post-Covid (period up to) the beginning of last year.”

“In 2022, 2023, maybe it was more of a reactionary behavior to think about going abroad,” he said. “I think now it’s becoming more rational and it’s more about these families and these families planning not just their assets globally, but planning their assets, their businesses, their family globally, using Hong Kong or Singapore as a base for to look further out.”

This interest in moving wealth abroad to take advantage of business opportunities comes as many Chinese companies have accelerated their global expansion over the past few years. This is largely due to slower domestic growth after years of rapid expansion.

This contrasts with how a previous generation of Chinese entrepreneurs mainly took advantage of global markets by simply exporting products made in China or buying real estate overseas.

Noah Holdings’ Pan pointed out that many of the firm’s wealthy clients have set up offices and alternate residences in Hong Kong, Singapore or Japan as a way to explore global business opportunities while maintaining proximity to operations in China.

“Many entrepreneurs don’t have a very clear distinction between enterprise and family,” Pan said. “They get their wealth from operating such a business and sometimes inject capital back (to the family).”

Attempts by wealthy Chinese residents to increasingly venture into global markets can also be seen in the demand for private, international travel.

“Whether it’s Southeast Asia, the Middle East, Africa, there’s been a lot of growth in those areas for Chinese conglomerates, so I think executives in China need to use long-range (private) jets. .. We see a lot of flights going there,” said Paul Desgrosseilliers, managing director at ExecuJet Haite General Aviation Services, which operates maintenance centers for private jets..

As part of a multi-year plan, ExecuJet Haite opened a private jet maintenance, repair and operations center at Beijing Daxing International Airport on August 27. The hub, which is claimed to be the largest for business aviation in Asia Pacific, can access a designated channel in the airport for international immigration and customs processing.

Desgrosseilliers said international business jet flights through ExecuJet Haite’s other facilities at Beijing Capital Airport and Tianjin have recovered but are not yet at pre-pandemic levels.

Major U.S. and Chinese corporations also noted a slowdown in Chinese consumer demand in second-quarter earnings.

The trend of wealthy Chinese looking to expand their businesses globally is still in its relatively early stages, and not every family will choose to go abroad, Canopy’s Chen said. He cited how a Chinese spice business family, whose founder is aging, did not feel the need to globalize their business or wealth planning.

“As founders of new generations, entrepreneurs think more globally, they also think about their businesses globally.”