China’s family-run manufacturing businesses, which played a significant role in the country’s economic rise, are facing a growing succession challenge as the next generation of entrepreneurs remains reluctant or feels unprepared to take over factories established by their parents.
The issue has raised concerns about the future of thousands of private businesses, with experts warning that unsuccessful transitions could result in declining business values, factory closures and the loss of expertise accumulated over decades. The challenge is particularly evident in Wenzhou, a city in eastern China known for its manufacturing industry and family-owned enterprises.
During the 1980s, small workshops run by families contributed to the expansion of China’s manufacturing sector. Many of these businesses began as modest operations, often established in homes, before growing into factories supplying products to domestic and international markets.
Ayu, whose parents started making leather shoes in their family home in Wenzhou, witnessed this transformation first-hand. The small workshop eventually expanded into a factory employing around 700 people. While his parents built the business through years of work and commercial relationships, Ayu now operates an online e-commerce platform rather than taking over the family’s manufacturing enterprise.
According to Ayu, the circumstances facing today’s entrepreneurs are considerably different from those experienced by their parents. The market has become more competitive, while the relationships with suppliers, customers and other businesses that helped earlier generations succeed cannot easily be transferred to their successors. He believes that inheriting ownership of a company does not necessarily mean inheriting the knowledge and connections required to operate it successfully. Without these relationships, a successor may struggle to maintain the business even after formally becoming its owner.
Hanqing Fang, an associate professor at Missouri University of Science and Technology, has highlighted the difficulty of transferring the personal experience and commercial networks that founders develop over years of running their businesses. While ownership shares can be transferred relatively quickly, the practical knowledge required to manage a company is much harder to pass on. The lack of succession planning has added to the problem.
Research by HSBC Life found that around two-thirds of wealthy people in China did not have a legacy plan. Separately, a study led by the University of Ningbo found that only 10 of the 114 private companies surveyed were being managed by members of the families’ second generation. The figures underline the difficulties many family businesses face as their founders approach retirement and their children consider whether to continue the enterprises built by their parents. For some potential successors, the reluctance stems from the responsibilities involved rather than a lack of access to family wealth.
Wu, a graduate working in marketing in Hong Kong, is hesitant to join his family’s business, which includes a snack-processing factory in Shanwei and dozens of retail outlets in Shenzhen and Hong Kong. Wu said taking over the enterprise would require him to understand complex business relationships, financial connections and administrative procedures.
He is concerned about whether he possesses the experience needed to manage these responsibilities effectively. Although he has not ruled out taking charge of the family business in the future, Wu acknowledged that he was not yet prepared to assume the role. China’s private sector accounts for more than half of the country’s tax revenue and approximately 60% of its gross domestic product, according to official estimates.
The future of family-owned enterprises therefore has implications beyond individual families, as their performance contributes to the wider economy. Economists warn that if a large number of these businesses fail to make successful transitions, the consequences could extend to employment, production and China’s longer-term economic growth.
Fang has cautioned that the principal risk is not simply the disappearance of family firms but the loss of the expertise, supplier networks and commercial relationships embedded in their founders. These capabilities, developed over many years, can be difficult to recreate once the original owners step aside.
As China’s first generation of successful private entrepreneurs prepares to retire, ensuring that their businesses remain viable will depend on more than transferring ownership to their children. The next generation must also acquire the experience, skills and relationships necessary to sustain the enterprises that helped shape the country’s manufacturing economy.
