China economy

Declining markets won’t hurt increase in Chinese billionaires, but an ‘all-out’ trade war will, say experts

  • In 2017, wealth of billionaires globally rose to its highest level, from US$7.5 trillion to US$8.9 trillion, according to UBS and PwC report
  • Almost one in five came from China
PUBLISHED : Friday, 26 October, 2018, 2:11pm
UPDATED : Friday, 26 October, 2018, 10:58pm

A dip in stocks globally is unlikely to hinder a rapid increase in the number of billionaires in China, but an escalation in the US-China trade war could.

If the ongoing trade tensions were to develop into an “all-out” trade war, “an abrupt change in economic conditions would have knock-on effects on billionaires’ interests and investments”, said Philip Wyatt, Asia-Pacific economist at UBS Global Wealth Management.

Trade war, slowing economy and market rout wipe out billions from China’s 400 richest people on Forbes list

In 2017, the wealth of the world’s billionaires rose to its highest level in history, from US$7.5 trillion to US$8.9 trillion, spread across 2,158 people. Almost one in five came from China, which saw 373 people hold US$1.12 trillion, rising from just 16 in 2006, according to a report on billionaires published by UBS and PwC on Friday.

The worsening trade war with the United States has contributed to a slowing economy and the worst stock market rout in four years in China, and this could prove crucial as last year’s rise was led by equity market growth and a strong global economy, according to UBS’s Wyatt.

“Two internet companies, Pinduoduo and Douyin, will be listed on the Nasdaq later this year, and the owners are already billionaires,” said Francis Lun, the chief executive of investment services company Geo Securities. “That will continue unless China enters into a real [trade] war with the US.”

China’s 400 wealthiest people have already lost a combined US$130 billion from their fortunes in the past year, according to Forbes’ 2018 China Rich List, published on Thursday.

And according to Castor Pang Wai-sun, head of research at Core Pacific-Yamaichi, more caution resulting from uncertainty surrounding the trade war and potentially less spending power could harm the growth of billionaires even further.

An abrupt change in economic conditions would have knock-on effects on billionaires’ interests and investments
Philip Wyatt, Asia-Pacific economist, UBS Global Wealth Management

In 2017, two out of three new super wealthy individuals a week in Asia were Chinese, keeping the region’s 814-strong cohort above their 715 US counterparts for a second year in a row. And although the net worth of Asian billionaires led by China was US$2.7 trillion, behind North America’s US$3.09 trillion, they are expected to overtake the Americans in three years, according to the report.

“[Last year’s] increase in billionaire wealth of 19 per cent was substantially higher than the average of 9 per cent in the previous five years,” said Wyatt.

Global markets gained US$9 trillion to end on record highs in 2017, driven by growth in trade, gross domestic product and low volatility, marking the way for a rise in billionaires. This year, however, has seen stock markets decline worldwide over interest rate increases in the US and emerging market volatility, only to be exacerbated by tensions surrounding the US-China trade war.

While China’s economy has doubled since the global financial crisis in 2008, this month the country announced its weakest quarterly growth figure since then, of 6.5 per cent.

But economic factors are not the only thing that drive the new super wealthy, according to the report. Entrepreneurship has played a large role, particularly in China.

“Opportunities in new emerging industries and technologies turn out to be very important, so much so that the downward shift in China’s real GDP growth since the global financial crisis has not been a significant hindrance to billionaire creation,” said Wyatt.

Of the global 199 self-made entrepreneurs who became billionaires for the first time last year, 89 came from China, compared with 30 from the US. And a total 97 per cent of all China’s billionaires were self-made. Rapid urbanisation, productivity growth and use of technology to grow sectors such as artificial intelligence, e-commerce and health care, are leading this, according to UBS and PwC.

China’s economy to brace for slower growth pace as trade war with United States takes its toll

Meanwhile, India and Indonesia are set to emerge as the next top Asian countries behind China to watch for billionaire growth, due to their large populations, fast urbanisation and potential for new technologies to disrupt traditional businesses, the report said.

In 2017, India’s billionaires grew from 19 to 119, while their wealth increased by 36 per cent to US$440 billion. In Indonesia, the number of super wealthy was static at 20, but their wealth grew by 37 per cent to US$72.5.