As Zong’s only child, Kelly inherited her father’s multi billion-dollar fortune, but gaining control of the business was far more complex. —Agencies
WHEN Zong Qinghou – at one time the richest person in China – died in February at 79, the battle to take over his Hangzhou Waha-ha Group quickly descended into a drama worthy of the HBO series Succession.
As Zong’s only child, Kelly Zong Fuli inherited her father’s multibillion-dollar fortune, becoming the country’s wealthiest woman overnight. But gaining control of the sprawling food and beverage empire he had built from the ground up proved far more complex.
Kelly Zong was forced to fend off challenges from other figures within Wahaha, in a struggle filled with twists and turns that kept the public guessing for weeks.
The spectacle shone a light on a looming crisis facing China’s business dynasties. The first generation of the country’s entrepreneurs has reached old age, and their children are confronting the daunting task of taking over their parents’ work – running some of the most successful companies in the world’s second-largest economy.
Between 2017 and 2022, about three-quarters of the country’s family-owned companies reported succession issues, according to surveys from a research association under the All-China Federation of Industry and Commerce.
That includes many of China’s most storied firms. More than 80% of the entrepreneurs on the 2022 edition of the New Fortune 500 Rich List – a ranking of the country’s highest net worth individuals – were aged 50 or above, while 31% were over 60 and 11% were over 70.
As a result, the spotlight is descending upon these ageing founders’ children, often referred to as “second-generation entrepreneurs”. In many cases, they are considered natural heirs to the family business once their parents step aside.
“In traditional Chinese thinking, passing the family business from father to son is seen as natural,” said Chen Gong, founder of the Beijing-based policy think tank Anbound. “In China, ‘success’ is often linked with lasting legacy, and there’s this deep-seated desire to hold onto wealth forever.”
But Chinese scions like Kelly Zong often face formidable challenges when they take over. They not only have to fight hard to win over sceptical investors and executives; they also need to develop a strategy to lead the firm through a delicate period for China’s economy.
For the younger Zong, simply establishing control over Wahaha proved a struggle. Though Zong Qinghou had built the company from a local bottled water distributor into a corporate colossus, he had long ceased to be majority owner.
By the time of his death, 46% of Hangzhou Wahaha Group was reportedly held by state-owned entities in the eastern Chinese city of Hangzhou, 24.6% by an employee ownership trust, and just 29.4% by Zong himself.
As sole named heir, Kelly Zong was entitled to inherit her father’s equity. But this did not mean she automatically gained management rights over the company, Shanghai-based law firm Sunhold explained in an article published in August.
“According to the new Company Law, ordinary matters require approval by shareholders representing over 50% of voting rights. Thus, even if Kelly Zong inherits Zong’s shares in Wahaha, she would still fall short of the 51% majority needed to control and manage the group,” the firm wrote.
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The result was a tense stand-off between Kelly Zong and Wahaha’s other major shareholders that resulted in her briefly resigning as general manager of the company before being reinstated within the week.
Zong is not the only child of a Chinese tycoon aspiring to step out of their parent’s shadow. Many of China’s second-generation entrepreneurs face similar predicaments as they try to prove themselves under the harsh glare of public scrutiny.
He Jianfeng, son of He Xiangjian – founder of leading Chinese appliance manufacturer Midea – struck out on his own by starting an investment company. But that venture pales in comparison to his father’s immense conglomerate, valued at about 420 billion yuan (RM259.9bil).
With He Xiangjian now in his 80s, there has been mounting speculation about the future of Midea. The younger He was removed from the company’s board in June and has faced setbacks in his investments.
In late 2023, he acquired a 29.4% stake in home furnishings brand Kuka for 8.88 billion yuan. But Kuka’s share price has since fallen from 36.7 yuan to 22.57 yuan, dealing He a paper loss of roughly 3.4 billion yuan.
Wang Sicong, the only son of property magnate Wang Jianlin, has also encountered obstacles while following his own path. Born in 1988, he has pursued a strikingly different investment strategy from his father, whose Wanda Group spans commercial real estate, entertainment and sports.
Through his private equity firm, Prometheus Capital, Wang Sicong has invested over 3 billion yuan in emerging sectors like esports and live streaming. These ventures won him a huge following among young Chinese, with his professional esports team IG winning the League of Legends World Championship in 2018.
However, a string of bankruptcies pushed Prometheus Capital into a debt crisis in 2020, leading many to question Wang’s business acumen. He remains an active investor, but still appears to be searching for the right balance between his family’s traditional business model and his own entrepreneurial leanings.
Second-generation entrepreneurs often have a fundamentally different outlook compared to their parents, who grew up in poverty and often built their companies from scratch, said Anbound’s Chen.
“For first-generation entrepreneurs, their love for their businesses resembles that of a father for his child or a husband for his wife,” Chen said. “This profound love drives them to dedicate their lives to creating, managing and nurturing their enterprises.”
But their children have enjoyed a far more privileged life. In some cases, they are reluctant to take over the family business, Chen said, as the stress of leading a huge company can be unappealing.
Easton Li, 28, never had an interest in his father’s cultural tourism business. As a teenager, he moved abroad to attend high school and dreamed of becoming a rapper, railing against the world’s injustices.
He began work at the firm in 2020, handling the company finances as his father’s chronic kidney condition worsened.
By 2022, Li found himself general manager of a company with millions of yuan in annual revenue. All this took place during a low point for the travel sector, as strict pandemic controls brought tourism to a standstill.
Li felt completely unprepared for his new role. His expensive overseas education was of little use; in fact, in the tight-knit business world he had entered, it often marked him as an outsider.
“China’s social landscape, with all its expectations around relationships and subtle interactions, felt completely foreign to me,” Li said.
“It wasn’t just the usual shift from school to the workforce; my straight-shooting nature, shaped by a Western education, made it tough to fit in the beginning.”
This wave of transitions is being made more difficult by a broader economic slowdown, most notably a prolonged slump in the property market.
The biggest difference for Li compared to his father’s era is how easily accessible information has become.
“Back then, if you had information others didn’t, you could make money,” he said. “Now, opportunities feel so limited, especially in the real economy.”
What’s more, he said, the country’s growth industries have been saturated.
“Most of the major developments in the past decade – infrastructure, 5G, renewable energy, even AI – are out of reach for regular people. The early movers and big companies have already monopolised these sectors. Small private businesses struggle to get loans, yet banks keep pushing funds on the large corporations.”
Li’s father started the business in 1999, part of a wave of pioneers who emerged during China’s initial period of private economic growth. But sustaining a successful business has become far more of an uphill battle since those heady days.
In tourism, for example, despite a recent resurgence in activity operators lament low revenues as Chinese consumers become more cautious with their spending, especially on non-essential items.
During the 2000s and early 2010s, private enterprises capitalised on China’s rapid economic expansion to thrive, particularly in the manufacturing, real estate, internet and consumer goods sectors.
The fortunes of the previous generation were rooted in the abundant opportunities presented by a transformative era, Anbound’s Chen said. But in a more uncertain climate, he added, “whether these second-generation entrepreneurs, who grew up with privilege, can weather the storms their ‘ninja’ parents did remains in question.”
For many in this new generation, it is not just a transition of power. They must also navigate an entirely new business environment as the pace of growth has slowed, regulatory tides have shifted, and changes to industrial structures have necessitated a deeper and more rapid modernisation.
Vic Xu, general manager of his father’s hardware and machinery company in Zhangjiagang – a city in eastern China’s Jiangsu province – expressed frustration over the drastically different landscape than the one in which his parents and grandparents were enmeshed.
“In the past, the focus was more on economic growth, and policies were more favourable to business development,” Xu said. “Now, regulations around environmental protection and safety are far stricter than they used to be, and that’s a huge burden on most small and medium-sized enterprises.”
Xu, who joined the family business in 2019, said attitudes towards certain industries have also changed considerably.
“Back in my father’s time, China was transitioning from an agricultural society to an industrial nation, and many viewed factory jobs and technical skills as valuable opportunities,” he said.
“Now, having gone through the one-child policy era with declining birth rates, fewer people are willing to work in factories, even though traditional industries still require a human workforce.”
Xu has adapted as best he can to these hurdles, he said, exploring more efficient production methods and investing in automation to reduce reliance on manual labour, though skilled individuals and personnel with technical knowledge remain in high demand.
And while the life of the second-generation entrepreneur can be complicated, Xu’s tenure shows youth can also bring advantages; the newly minted manager has made use of his overseas experience for his father’s firm, adopting practices he learned while studying in the United States and working at a Japanese company. — South China Morning Post
