China’s wealthy are looking abroad for business investments

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, asset managers and consultants said.

This year has seen a “very significant” trend of requests from Chinese family offices looking to acquire smaller companies in Japan, said Ryota Kadogaki, co-founder and global CEO of Monolith, a Japan-based family office consultancy.

“I also study Chinese, and I am thinking of hiring Chinese speakers in my company now,” he said, noting that slower growth in China and a weaker Japanese yen are supporting the increased interest. Even with the recent strengthening to around 20 yen against the Chinese yuan, that is still weaker than the 2020 level of 15.

Investors based in mainland China increased their non-financial direct investments abroad by 16.2% to the equivalent of $83.55 billion according to the Ministry of Commerce in the period January to July. It said the investments covered more than 6,100 companies in 152 countries and regions.

“Most of our clients are China-based entrepreneurs looking to further globalize,” Grant Pan, CFO of China-based asset management firm Noah Holdings, told CNBC. “It’s clear that they are at least keeping their eyes open for opportunities for their businesses around the world. It’s clear that there are slowdown pressures in domestic markets for many sectors.”

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

Noah Holdings said its number customers registered abroad rose 23% from a year ago to almost 16,800 at the end of June. The company’s number of active foreign customers increased by almost 63% year over year to 3,244.

Foreign 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 results.

Mainland China maintains strict capital controls with an official foreign exchange limit of $50,000 per year. That means prosperous Chinese have long looked for alternative ways to grow their wealth outside the country.

Kadogaki noted that buying foreign companies is a way for Chinese investors to move assets abroad. He also shared examples of how a fund investing in a technology company in China could now look to acquire a store in Japan to increase potential sales.

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

Currently, Canopy says its system supports English, Simplified and Traditional Chinese and German. The company claims it works with more than 300 custodians over $160 billion in assets under reporting.

“Normally we are dealing with the professionals who help manage the money for the asset owners,” said Mu Chen, executive director at Canopy. “What we’re hearing from them is that the fastest growth in terms of interest is happening from Chinese customers [occurred] in the post-Covid [period to] early last year.”

“In 2022 and 2023, it might have been more reactionary behavior to think about going abroad,” he said. “I think it’s becoming more rational now and it’s more about these families. These families not only plan their assets globally, but also plan their assets, their business and their family globally, using Hong Kong or Singapore as a base to look more outward.”

This interest in moving their wealth abroad to pursue business opportunities stems from the fact that many Chinese companies have accelerated their global expansion in recent years. This is largely due to slower domestic growth, after years of rapid expansion.

That contrasts with the way an earlier generation of Chinese entrepreneurs tapped global markets primarily by simply exporting Chinese-made goods or acquiring real estate abroad.

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

“Many entrepreneurs do not make a clear distinction between business and family,” says Pan. ‘They get their wealth from running such companies and sometimes they inject capital back [to the family.]”

The efforts of affluent Chinese residents to increasingly enter global markets are also reflected in the demand for private, international travel.

“Whether it’s Southeast Asia, the Middle East or Africa, there’s been a lot of growth in these areas for Chinese conglomerates, so I think there’s a need for China executives to leverage [private] long-haul aircraft… We see a lot of flights going there,” said Paul Desgrosseilliers, general manager of ExecuJet Haite General Aviation Services, which operates maintenance centers for private planes..

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 centre, which claims to be the largest for business aviation in Asia Pacific, has access to a dedicated channel at the airport for international immigration processing and customs.

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

Major US and Chinese companies have also noted a slowdown in Chinese consumer demand in their second-quarter earnings reports.

The trend of affluent 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 family of a herbal products company in China, whose founder was aging, felt no need to globalize their business or estate planning.

‘As founders of the newer generations, entrepreneurs think more globally, they think too [about] their activities globally.”