Family offices in mainland China will increasingly look to set up shop in Hong Kong in 2023 following the re-opening of the world’s second-biggest economy, according to a leading academic in this field. However, more work still needs to be done to attract family offices.
Professor Winnie Peng, director of the Roger King Center for Asian Family Business and Family Office at the Hong Kong University of Science and Technology (HKUST), told Asian Private Banker that Hong Kong’s proximity to the mainland makes it the perfect location for Chinese family offices.
“Hong Kong will definitely benefit a lot more when the Chinese economy is better. However, even if it turned out not to be the case, Hong Kong also has the opportunities because mainland Chinese entrepreneurs will look to set up family offices [in Hong Kong] after exiting their business.”
“No matter what, whether business becomes good or bad in mainland China, we have opportunities,” she said. “Greater diversification of the wealth is a trend, plus more and more business exits are happening.”
Hong Kong needs to take this chance to “grab more in this big potential market”, Peng said.
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Passing the baton
When it comes to Chinese entrepreneurs, many in the first generation are looking to hand over the reins to the second generation. “Most of the first generation entrepreneurs hope to pass the baton to the second generation, yet the reality is very difficult.”
A large portion of entrepreneurs are thinking of exiting their business because of succession issues, Peng believes. In mainland China, many of the second generation do not want to inherit their family business, so Chinese entrepreneurs face a dilemma of not having internal talent to succeed them.
Meanwhile, the first generation of Chinese business leaders often do not trust outside people to run their business, she said, leading them to sell.
“After a first-generation entrepreneur gets a large sum of money after selling their business, they will need to set up a family office,” Peng said.
Hong Kong needs to do more
Hong Kong’s government has introduced policy incentives to strengthen the financial centre’s role as a global wealth hub, particularly in light of competition from Singapore.
For example, the Financial Services and Treasury Bureau has submitted amended draft legislation that will exempt single family office-owned investment holding vehicles and their portfolios of special purpose entities from tax on certain transactions.
The aim is to provide tax certainty to investment holding vehicles owned by U/HNWIs and their family members to attract family offices to the territory.
“The Hong Kong government has started doing things,” Peng said. “But I don’t think that’s enough.” Take the tax concession for single family offices, she said. There is still some debate around the definitions, which the government needs to think carefully about.
“In the detailed policy, [the government] mentioned that 95% of the assets need to be owned by the family members. But what do you mean by family members? You have to be very clear,” she said. “How do you define single family office? How do you define family? Those are actually big questions.”
Doing more good
Peng believes that the Hong Kong government also needs to look at how to encourage more U/HNWIs to set up foundations beyond family trusts and single family office vehicles.
Traditionally, Hong Kong has been home to a lot of private enterprises dealing with philanthropy because the city has more private charities and talent than Singapore, according to Peng.
“Hong Kong should really see how it can attract more people and more funds to do good things for society,” Peng said.