In the city of Wenzhou, China’s family-run manufacturing firms that once drove rapid economic growth are increasingly confronting a succession challenge as younger generations show reticence or lack readiness to assume control. The phenomenon, reflecting wider trends across the country, spotlights a potential vulnerability in China’s private sector, which accounts for a significant portion of the nation’s GDP and tax revenue.

Ayu, who grew up watching his parents handcraft leather shoes in a small workshop that eventually expanded into a 700-person factory, embodies the experience of many second-generation heirs. While the factory once thrived on close-knit personal relationships and experiential knowledge, the competitive landscape has shifted, making it difficult for successors like Ayu to replicate earlier success. “You have to build the network yourself,” he said. “On paper, you’re the boss, but in reality, you inherit an empty shell.”

This sentiment aligns with research by Hanqing Fang, an associate professor at the Missouri University of Science and Technology, who highlights how family businesses often hinge on the founder’s personal connections and expertise. Though ownership can transfer quickly, the intricate networks and tacit knowledge that sustain these enterprises are challenging to pass on. Fang explains that the risk is not merely business closures but the loss of embedded capabilities critical to maintaining value and continuity.

The issue is widespread. Research from HSBC Life shows that about two-thirds of wealthy Chinese individuals lack a formal legacy plan. A study by the University of Ningbo found only 10 out of 114 surveyed private companies were managed by the second generation, illustrating the cautious approach many heirs take toward assuming leadership.

Wu, who works in marketing in Hong Kong and comes from a family operating a snack factory and multiple retail stores, describes his ambivalence vividly. He acknowledges the appeal of inheriting wealth but is wary of the complexities involved. “There are so many interpersonal relationships and financial connections to handle,” he said. “Most young people dream of getting rich overnight, but inheriting a fortune comes with complicated paperwork and significant responsibilities.”

Economists warn that if family-run firms falter en masse, the broader private sector—and thus China’s economic momentum—could be imperiled. The challenge lies less in the formal ownership transition and more in sustaining the intricate supplier networks, industry know-how, and business relationships honed by founders over decades.

While Wu does not dismiss the prospect of eventually taking over the business, he admits he is not prepared at present. “If I could have the money without the responsibilities, I’d take it immediately,” he said. “But it’s not that simple.”

As family businesses across China confront questions of succession and sustainability, their futures remain uncertain amid shifting economic realities and generational shifts in ambition and preparedness.