Rupert Hoogewerf first came to China in 1990 to study at Renmin University in Beijing. He became fascinated with the rapid changes taking place in Chinese society and, after a period spent working for consultancy Arthur Andersen, he decided to make a career of describing those changes. This resulted in the creation of the now-famous Hurun Report, which lists and describes China’s wealthiest citizens. Hoogewerf spoke to CHINA ECONOMIC REVIEW about the challenges of measuring wealth here, the drivers of wealth creation, and the increasing importance of philanthropy and corporate social responsibility.
Q: What was the biggest difficulty you encountered getting started?
A: The first challenge was defining the criteria for what constitutes success. We decided that measuring success through the amount of personal wealth accumulated from business made the most sense. The next issue was how to dig up these entrepreneurs. We came up with a number of creative solutions. We started by going through the last 10 years of domestic newspapers and magazines. For example, when Jiang Zemin went to Sichuan, a photograph of him shaking hands with an entrepreneur was on the front cover of the People’s Daily. So we went and found that entrepreneur. When Bill Clinton came to Shanghai, he had lunch with several of Shanghai’s prominent businesspeople. We wrote down their names. The result was our first list of China’s 50 wealthiest people in 1999. We also had several methods which failed completely. We assumed that if you are a big entrepreneur, you would give money to a school or a university. So we went around some of the top universities and we didn’t find a single mainland entrepreneur’s name on a building. Also, in the West when you become very successful you frequently donate private collections to museums. So we went to the recently established Shanghai museum and again we didn’t find a single entrepreneur donor.
Q: So what are your criteria now? Is it getting easier to track down these people?
A: Our criteria have changed slightly over the past several years but remain fundamentally the same. There are many more listed companies abroad and in China so there is much more reliable public data and much more transparency.
Q: Wealthy Chinese people were once a famously secretive lot. Has this changed?
A: Yes. As the confidence of these entrepreneurs has grown over the last decade, they are less afraid of being in the public eye. They are frequently the largest taxpayers, the largest employers, the industry leaders in a given region, and as such they have built up a very strong network of government contacts, suppliers and customers. This means they have much less to worry about from public exposure. They can take pride in being counted among the 1,000 most successful entrepreneurs in China. An example is Wang Chuanfu of [automaker] BYD. Two weeks before the list came out, I called him and told him he was going to be the number one. His first reaction was, "I don’t know, so much more publicity." But underlying it was still pride in what he’s done.
Q: Have there been changes in the sources of wealth?
A: The biggest source of wealth has been urbanization in China, which has created wealth for property developers, steel tycoons, and others in related industries such as electronics retailers. If you buy a house you need to buy a refrigerator, air conditioning units and so on. There are also the raw materials used, including the mines that the materials come from, and even the financial sector that is giving out the mortgage loans. To the best of our understanding, there is no reason to suggest this trend will slow down for the next 15 years, during which another 300 million people from the countryside will move into the cities. These people require homes, office space and retailing space, and this will continue to fuel wealth creation for the top entrepreneurs. Recently there have been other trends. We’ve noticed the low carbon economy has begun to gain traction, so there have been a number of solar industry entrepreneurs – primarily producing for the export market but also for the domestic market – who are building up leadership in China as well as globally. Also, as urbanization matures, and some cities become so-called developed cities in line with their Western counterparts, we are seeing growth in the services sector: restaurants and entertainment, for example, and clothing retailers.
Q: How has the service sector targeting China’s ultra-rich developed?
A: If you look at the lifestyle of these entrepreneurs, 10 years ago they were living in shabby apartments near their factory. But over the last five years across the country, luxury properties have started to pop up. They are therefore moving out of the shabby apartments and into these luxury properties. At the same time, this improvement has driven them to improve their lifestyles in other ways. They want to see the world to open their minds. They pay more attention to their health. They drink less, especially hard liquor; we estimate that half of the entrepreneurs on the Rich List don’t drink alcohol at all. Their favorite sport is swimming, followed by golf. Swimming is popular because they can do it with their families and it’s easy to organize. Golf is popular because it’s good for fitness and business as well. In terms of wealth management, the rise of the capital markets coupled with property prices has created an enormous amount of liquid wealth. At present, most of the channels for investing that wealth are dominated by "vanilla products" – mostly plowing money back into equities, property and simple fund structures. However, as these entrepreneurs become more sophisticated – and this is happening extremely quickly – their appetite for higher risk products has increased. This is where the international wealth management firms come in. China is one of the most promising countries in the world for private banking growth.
Q: You said that you originally had trouble finding entrepreneurs through tracking their philanthropy. This seems to have shifted.
A: Yes. This is another megatrend that we’ve noticed. The Sichuan earthquake was a watershed for Chinese charity. There is increasing innovation in CSR [corporate social responsibility] among these entrepreneurs as they realize how much value they can create for their brand. This is not only in terms of consumers but also in terms of their connections with local and central government, which might hand out very lucrative contracts to its favorites. As the rule of law becomes stronger in China, winning the patronage of your government will require more transparency and this means that the entrepreneurs who give most to society in terms of tax payments, employment and so on will be rewarded with business opportunities. A lot of people in the West misunderstand the concept of CSR as it really works in China. CSR in China is in fact much more sophisticated than can been seen by the naked eye, primarily because the government is the prime stakeholder. But as the market matures, as the brand plays a bigger role, the consumers will become more important and there will be more public CSR programs.
Q: This seems rather cynical. Is there no genuine charitable impulse?
A: I think from a business point of view there is no such thing as philanthropy. CSR is brand building. At the end of the day you are responsible to your shareholders. But from an individual point of view, most of these entrepreneurs have come into direct or indirect contact with hardship, during the Cultural Revolution, the civil war and so on. As a result, there is a strong feeling that one should do good and give back. I’m not a cynic in this respect. I honestly believe there is a genuine desire to help.
Q: But all this giving is so recent. Why weren’t they giving before?
A: It’s not so straightforward. Twenty years ago everything was the government’s responsibility, so there was no incentive to do charity work. Even if you had the cash, you wouldn’t be allowed to do it. It’s only as the business sector has grown that the entrepreneurs have had more clout to do charity. I don’t think it was because they didn’t care but because they didn’t have any outlet for their charitable impulses. Now, though, it is at the forefront of discussion. In fact, the earthquake could push the Chinese to lead the world in CSR activities. It’s in their interest to be seen to be doing good.