Why Chinese billionaires with assets in Hong Kong and Singapore face an unprecedented liquidity trap

Wealth advisers say their clients did not see it coming. “Many clients, trustees, and advisors are still in shock,” Clifford Ng, a Hong Kong-based partner at Zhong Lun, told CNBC. At Singapore’s Dentons Rodyk, chief operating officer Kia Meng Loh said the calls have come from families, trustees, private banks, trust companies and insurers alike, all asking whether they were affected, how much they could owe and how they could pay.

For wealthy families who have spent years building complex structures around their assets, the issue is not simply how much tax they owe. It is also where they will find the cash to pay it. China’s wealthiest are being forced to reconsider how much of their money can really remain outside the reach of Chinese tax authorities.

What is the shock factor?

The new rules impose a 20% individual income-tax rate on certain gains connected to offshore trusts. That can include gains on assets such as shares and property when they are transferred into a trust, as well as income generated by the trust.

The rules also cover some historical liabilities. Taxpayers have 90 days to declare and pay specified outstanding amounts linked to assets transferred into offshore trusts from January 1, 2023, as well as certain trust income.

Dentons Rodyk, a Singapore law firm that advises wealthy families and private-wealth clients, said the 90-day period is not an amnesty. The tax is still due, but qualifying taxpayers can avoid overdue fines by making the required declarations and payments within the window.

A family can own billions of dollars in assets and still have relatively little cash available. A private company stake cannot necessarily be sold overnight. A property can take months to sell. And a tax bill does not wait for an illiquid asset to become liquid.

Why offshore trusts are important

Offshore trusts are not automatically illegal or designed only to avoid tax. They are commonly used for succession planning, protecting family businesses, managing assets across generations and deciding how wealth should be passed to heirs. But they can also make it harder for tax authorities to see who ultimately controls or benefits from an asset.

Hong Kong became a natural centre for this business because of its proximity to mainland China and its established legal and financial system. Singapore has also become an important wealth-management centre.

A KPMG and Hong Kong Trustees’ Association report found that assets held under trusts in Hong Kong reached about $667 billion in 2023. About 55% of the underlying investments were located in mainland China and Hong Kong.

However, that $667 billion figure should not be read as the amount of Chinese billionaires’ money that could suddenly hit the market. It covers the wider Hong Kong trust industry, including public and pension funds. KPMG and the Hong Kong Trustees’ Association said 70% of the assets were held by public and pension funds. The amount of private Chinese wealth affected by the new rules is not publicly known. Still, the scale of Hong Kong’s trust industry shows why the new rules are important to the region’s wealth-management business.

The foreign passport problem

The rules also challenge another assumption wealthy Chinese families may have relied on that moving abroad or obtaining another passport automatically takes them outside China’s tax system. It does not necessarily work that way.

Dentons said people who acquire foreign citizenship or permanent residence but retain their main economic interests in China can still be treated as Chinese tax residents.

In other words, moving the person does not necessarily move the tax obligation. The firm described the practical lesson as simple: a second passport or foreign permanent residence is not, by itself, a tax plan.

That is important because offshore wealth structures often involve several layers including a person, a family office, a trust, a company and assets spread across different countries. Beijing’s new rules are aimed at bringing those structures into clearer view.

Beijing has been testing this for months

July announcement did not come completely out of nowhere.Bloomberg reported in March that tax authorities in Shanghai, Jiangsu and Shenzhen had already begun demanding information about offshore trusts. Authorities were seeking details on income such as dividends and gains from the sale of shares.

Shanghai had reportedly started requesting several years of income information from some taxpayers, while Jiangsu and Shenzhen later joined the effort. That suggests Beijing had already been testing the machinery of the crackdown before issuing the national rules.

The July announcement therefore looks less like a sudden new idea and more like the formalisation of a process that had already begun locally. It also comes at a difficult time for China’s public finances.

Government land-sale revenue fell 31.5% in the first half of 2026, according to Reuters, explaining the pressure on local government finances after years of weakness in the property market. That does not prove the offshore-trust crackdown was introduced because land-sale revenue collapsed. But it adds to the fiscal pressure facing the government as it looks for revenue and greater tax compliance.

Hong Kong and Singapore still want the wealthy

There is another tension here. China may be tightening its scrutiny of offshore wealth, while Hong Kong and Singapore continue to compete aggressively for the global wealth-management business.

Hong Kong’s Financial Services and the Treasury Bureau says more than 3,380 single-family offices were operating in the city at the end of 2025. The government has also introduced tax incentives and other measures designed to strengthen Hong Kong’s position as a family-office and wealth-management hub.

Singapore is pursuing a similar strategy.The Monetary Authority of Singapore has said wealth owners choose the city for its strong rule of law, predictable regulation and comprehensive ecosystem of wealth managers and professional service providers. Singapore had 1,650 single-family offices benefiting from tax incentives by the first eight months of 2024, according to remarks by MAS Deputy Chairman Chee Hong Tat.

Where does the cash come from?

This is where the new rules could create the biggest practical problem. If a family has a large tax bill but most of its wealth is tied up in private companies,property or long-term investments, it has a limited number of choices. It can sell liquid investments. It can sell property or other assets. Or it can borrow against assets and use the money to pay the tax.

The first option could create selling pressure in listed markets. The second may take too long. The third allows families to preserve their assets but leaves them with more debt.

Dentons has explained liquidity as one of the central issues families and trustees will have to address under the new rules.The important point is that being extremely wealthy does not necessarily mean being extremely liquid.

One of the clearest examples of how offshore structures can intersect with enormous Chinese fortunes came from the inheritance fight around Zong Qinghou, the late founder of Wahaha.

After Zong’s death, three of his children born out of wedlock sought to freeze an offshore trust worth billions of dollars controlled by their half-sibling, according to reporting by the South China Morning Post and other outlets.

The dispute offered a rare public glimpse into how much wealth can sit inside structures that are largely invisible to ordinary observers.

It also showed why trusts can become important not just for taxes, but for succession and family control.

The July rules are therefore about more than a 20% tax rate. For years, wealthy Chinese families have been able to combine businesses and assets in China with trusts, bank accounts, companies and other structures outside the mainland.

Those structures will not disappear.Trusts will still have a legitimate role in succession planning, asset protection and family governance.

But the rules change the calculation. Karen Cheung, a partner at HFW, told CNBC the new rules bring greater clarity to an area that had long involved uncertainty. For families with cross-border assets, she said, the emphasis is likely to shift “from tax efficiency to transparency, governance, and long-term succession planning.”

That may be the most important change of all. China’s wealthy are not necessarily being told to bring every asset home. They are being told that putting an asset offshore does not necessarily put it outside China’s tax system.

And for families now looking for cash before October 22, that distinction has suddenly become very real. The question is no longer simply how much wealth they have. It is how much of that wealth they can turn into cash.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.