Business

Why the rich Chinese won’t be setting up family offices: Tall Poppy Syndrome

Chinese premier Xi Jinping is the latest convert to the Tall Poppy Syndrome, a cultural phenomenon where those in authority criticise, or sabotage, wealthy individuals perceived to have an excessive sense of their own importance. The syndrome can result from envy, corruption, socialist dogma, bad business decisions, or possibly all four. 

China’s Gilded Age is over. Company by company,  over the summer, Xi’s regulators have been out to curtail rampant ambition. Pony Ma, CEO of Tencent, is under orders to restrict gaming for younger people and terminate his exclusive music deals. Tech tycoon Wang Xing of shopping platform Meituan, an equivalent to Amazon, has backed Xi’s call for “common prosperity” on receipt of an antitrust probe. Jack Ma, founder of Alibaba, is out of favour after a $2.8 billion antitrust fine.

The Tall Poppy Syndrome was first described by Livy, the historian, when Roman king, Lucius Tarquinius Superbus, was asked how he wanted to deal with the proud citizens of Gabii, newly under his control. Tarquin said nothing but went into his garden to slash off the heads of its tallest poppies with his stick. The most eminent citizens in Gabii were executed without delay.    

His political supporters in Zhejiang province are under scrutiny. Hui Ka Yuin once received finance from his wealthy friends around the poker table to build up Evergrande Group. But Evergrande is now in financial trouble, its bonds have slumped and his friends are taking a low profile. Rather than organising a rescue, regulators have ordered the company to “actively diffuse debt risk and maintain real estate and financial markets stability.” 

Record numbers of state-backed companies have been allowed to default on their bonds.  Leveraged credit provider Huarong Asset Management has just received a bailout but analysts say the company posed a systemic risk. Its former chairman Lai Xiaomin was executed in January following bribery charges.

Momentum will push the Chinese economy forward, for now. Its venture capital sector is continuing to attract money, with amounts raised to August in line with the same month in 2020. But entrepreneurs are fearful and analysts say the crackdown will stifle the willingness of entrepreneurs to take risks, as they constantly refer decisions to the state. 

Research by Family Capital on 7 November 2018 confirmed family offices formation outside Hong Kong has never been rapid and entrepreneurs like Jack Ma and Pony Ma are keen to use their resources to become philanthropists, rather than serial investors. 

There are also fears over prospects for China’s highly-leveraged real estate sector which is likely to require a thorough workout, possibly using advice from western banks like JP Morgan and Goldman Sachs who are surprisingly active in the country.  

On 31 August, Reuters reported that China’s biggest insurer, Ping An, was being probed over suspect property loans and funds.  Xi Jinping made his feelings about property crystal clear in 2017 when he said houses are “for living in, not speculation.” 

The Tall Poppy Syndrome was first described by Livy, the historian, when Roman king, Lucius Tarquinius Superbus, was asked how he wanted to deal with the proud citizens of Gabii, newly under his control. Tarquin said nothing but went into his garden to slash off the heads of its tallest poppies with his stick. The most eminent citizens in Gabii were executed without delay.    

The syndrome hit prominence in Australia in the 1980s, when entrepreneurs like Alan Bond, John Elliott and Robert Holmes a Court, were criticised for using debt to take over large parts of their economy.  Critics took delight when their businesses struggled in the late 1980s and got broken up. Alan Bond ended up in jail.

The US has seen dark periods for entrepreneurs, notably the post-1900 progressive era which followed the excesses of its Gilded Age. But it has generally encouraged entrepreneurs to build businesses and develop their family offices with the help of tax breaks and benign competition policies. The nearest equivalent to the current Chinese experience took place in Russia after Putin’s rise to power, when he told oligarchs to follow the state line, or suffer the consequences.

It’s not so long ago that China’s 80 billionaires looked likely to become global capitalists.  Quite why we believed the Chinese Communist Party would allow this to happen is a mystery.  But capitalism does like to travel hopefully. 

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