China has more than 10,000 people with net assets worth more than $30 million, according to the recent World Ultra Wealth Report in 2013 released by Wealth-X and UBS and this group is now finding family assets management more appealing.
The International Family Office Association (IFOA), reports that many billionaires have been asking about the establishment and operation of overseas trusts. Some Chinese wealth management agencies like China Merchants Bank, Ping An Trust Co., and Gopher have already seen the potential of family foundations, which are quietly gaining ground even though most of the family wealth management business in China still sits at the investment level. China Merchants Bank, for example, can now offer off-shore trust service for billionaires who wish to pass on their fortune while avoiding taxes.
However, Guo Danyuan director of wealth management at UBS, has found that the children of many billionaires are reluctant to take over the family business. The typical affluent Chinese businessman has spent two or three decades in traditional industries, and has had only one child, usually educated overseas. This creates a difference in thinking between the family and the child. The ultra-rich now pay more attention to the security of their family property although the exact nature of these family foundation schemes is shrouded in secrecy.
With regard to off-shore options, Chinese laws make it impossible to set up a private trust to entirely isolate property. The undeveloped legal and tax system, as well as the absence of a trust registration system, greatly affect the advancement of Chinese family trusts. Most ultra-rich will set up family foundations overseas. Many like to set up long-term trusts (sometimes up to 100 years) in places like the Cayman Islands.
Some ultra-rich have also adopted off-shore plans via the red chip structure. They create an overseas trust in a place with a well-established system while also establishing an overseas holding corporation to reverse-acquire the property in China. After this they can transfer the interests of that corporation into trust property and give it to a trust agent. The ultra-rich person is usually the “CEO” of the holding corporation so they can secure property and make vital decisions themselves.
This method still has some limitations and risks. For the Chinese ultra-rich, property that can be transferred abroad is restricted to income acquired legally through avenues like overseas investment or overseas IPO. In some industries that have restrictions on foreign capital, the property cannot be transferred through this structure without fear of legal trouble In spite of this, overseas trusts still attract many ultra-rich. They can also help corporations reorganize investment across nations.
Assets allocation is still difficult in the global market due to restrictions on foreign exchange in China. However, according to Zhang Qiong, investment service director of UBS Wealth Management, China’s ultra-rich tend to be relatively open to risk in their assets management.
Source: Economic Observer Online
