The Big Test of Succession in Chinese Private Enterprises: Four Provinces, Four Different Approaches – No Standard Answers
Hello everyone, I'm your financial journalist. Today, we're going to discuss a significant event that's quietly taking place along China's coastlines, but with far-reaching consequences: China's first generation of private entrepreneurs is aging, and their children (the second generation) are stepping in to take over.
This is more than just a simple matter of the "rich second generation" returning to manage the family businesses. Behind this lies a complex reorganization of wealth, power, industries, and family fortunes. If we look at the four provinces with the most developed private economies—Zhejiang, Jiangsu, Fujian, and Guangdong—we'll find that although they're all dealing with succession, the approaches are vastly different.
To put it simply:
- Zhejiang: Pragmatism – Sell if possible, innovate if necessary
Zhejiang's private enterprises are typically small but highly efficient. From pumps and valves in Taizhou to small goods in Yiwu, the owners are often the biggest sellers and coordinators. This "strongman" model is very effective in the early stages of business, but it becomes a major obstacle when it comes to succession because the companies are deeply dependent on the owner. Zhejiangers are pragmatic; they focus on substance over appearance. Therefore, the logic of succession in Zhejiang is clear: first, determine if the business is worth passing on. If the business still has potential, the second generation doesn't just become factory managers. They are known as the "innovative second generation." They use the foundation laid by their parents, along with their knowledge of the internet, branding, and international markets, to revitalize the company. For example, they might shift from relying on trade shows to using platforms like TikTok, e-commerce websites, and cross-border sales, or upgrade from low-end manufacturing to high-end brands. In this case, succession becomes a form of "second entrepreneurship."
- Jiangsu: Engineerly thinking – Transforming the family business into a modern company
Many private enterprises in Jiangsu (especially in southern Jiangsu) originated from township or collective enterprises, giving them a more formal and structured approach. The second generation's transition is more like a "governance project." They start by improving internal systems, such as ERP, financial transparency, and quality management, and bringing in professional managers. The Jiangsu government also provides support through entrepreneur training programs to help them learn modern management skills. The advantage of this approach is stability and resilience, but the downside is slower response times in fast-changing markets.
- Fujian: Clan ties – Relatives are both a resource and a constraint
Fujian's private enterprises are often family-owned, with brothers, uncles, and fellow townspeople working together. This structure makes succession complex, as it involves not only business management but also family dynamics. The advantage is strong resource mobilization, but the challenge is managing family conflicts and power struggles. Many Fujian companies adopt a compromise where the family retains shares and control while entrusting specific operations to professionals or external teams.
- Guangdong: Market-oriented pioneers – Whoever is capable takes the lead, regardless of family ties
Guangdong's enterprises are deeply integrated into global supply chains and have a strong market-oriented culture. The concept of passing the business to the most capable person, rather than the eldest son, is widely accepted. This is evident in companies like Midea, where the He family didn't let their children take over directly but instead trained professional managers like Fang Hongbo. The advantage of this approach is flexibility and adaptability, but the risk is potential lack of clear governance and financial transparency.
The Common Challenges:
Despite the differences, all four provinces face similar challenges:
1. The rapid aging of the first generation of entrepreneurs, who need to pass the baton or retire within the next decade.
2. A broader range of choices for the second generation, who are more educated and consider other career paths.
3. Shrinking profit margins due to rising labor costs, environmental regulations, and competition from Southeast Asia, requiring technological, branding, and capital investments.
4. A strong "rule by the owner" culture that makes it difficult for the second generation to take over effectively.
The Future Path: No Standard Answers, Only Suitable Solutions
Public opinion often simplifies the succession process, either as a story of successful "innovative second generations" or failed "spoilt brats." However, a mature succession system should allow for various outcomes:
- Successful succession: If the business is viable and the second generation has the skills, they should upgrade it through innovation.
- Professional management: The family can retain ownership while letting professionals handle the business.
- Integration or sale: The company can be sold to a peer, industry fund, or local entity for more efficient resource allocation.
- Responsible closure: If the business is no longer profitable, it should be shut down properly, with proper care for employees and debts.
Zhejiang needs to improve mechanisms for the merger and acquisition of small businesses and their exit from the market. Jiangsu needs to become more market-sensitive while maintaining stability. Fujian needs to institutionalize family trust. Guangdong needs to mitigate the risks associated with a market-oriented approach.
In conclusion, succession is about redistributing responsibilities and interests among the company, family, employees, customers, and assets. The first generation has built the foundation; the second generation's task is to make the business more valuable and sustainable. Whether it's continuing the business, handing it over to professionals, or selling it off, the key is to find the most suitable solution for each situation.
This process marks the maturation of China's private economy.