OFFSHORE BANKS HAVE long targeted China’s ultra-wealthy through desks in Hong Kong, Singapore and Zurich. The arrival of specialist private banking or wealth management divisions in China’s own domestic banks is a newer trend. Now most of the bigger home-grown banks have built businesses in this area, and they expect it to be one of the biggest drivers of growth in coming years.
Just how big is the wealth management opportunity in China? One of the most useful sources of data on this is a report published in October by Boston Consulting Group. It estimates that households own about $2.5 trillion in China, making it the largest market in ex-Japan Asia; if one considers Greater China, including Hong Kong and Taiwan, it accounts for 45% of wealth in the region ex-Japan. BCG says Chinese wealth grew by a 23.4% compound annual growth rate between 2001 and 2006 – the world’s fastest – and at 31.6% in the year running up to the report’s publication, despite the fact that Chinese households have historically put a large proportion of their wealth into cash.
This pace is likely to be sustained. China is experiencing extraordinary economic growth (11.4% in GDP terms in 2007), and has a liberalizing market and strong asset returns, although recent stock market falls have at least temporarily dented the trend. BCG projects an annual rate of asset growth among Chinese households of 17.4% over the next few years, with assets under management projected to reach $5.5 trillion – more than double today’s level – by 2011.
This, though, merely indicates the broader accumulation of wealth in China. What about the rich? BCG estimates that by the end of 2006 there were 310,000 dollar millionaires in China – a 20% compound annual growth rate over the previous five years. So China already ranks fifth worldwide in its number of millionaires. BCG estimates that by 2011 the figures should have hit 609,000. Once people get wealthy, it seems they build their fortunes fast: since 2001, households with more than $5 million in assets have grown their share of national wealth from 13.3% to 20.1%.
That’s the opportunity for wealth managers. "With economic growth, clients in China will have more and more demand for wealth management products and other private banking services," says Lynn Zhang, general manager of private banking at China Citic Bank. "Chinese people accept new concepts very quickly. Although Chinese private banking has lagged behind western countries for about 20 years, the speed at which they are catching up is very quick."
Citic is one of many institutions to have put into practice a plan to grab a piece of this new market. It set up its own private banking arm in August 2007. It has what it calls a private banking sub-centre in Beijing, and plans to open new centres in the northeast and south of China this year. Other cities are served by dedicated relationship managers.
There’s a similar story at China Merchants Bank, which is setting up a private banking department within its head office, and has built private banking centres in Beijing, Shanghai, Shenzhen and Guangzhou, with relationship managers in each of them to serve customers. "The needs for banking services have changed a lot in China," says Wang Jing, deputy general manager of the private banking department. "Before, it meant only settlement. Now they need more consultants for wealth management. That’s the trend."
Bank of China, working with Royal Bank of Scotland, which has a 10% stake in the Chinese bank, set up a business unit management structure for private banking this year and has built a dedicated product team within it. It is already active in Shanghai and Beijing but this year should roll out outlets in a further eight coastal cities. Industrial and Commercial Bank of China (ICBC) has been targeting the wealthy for several years, and has more than 5,000 client managers in wealth management, including more than 500 planners with CPA certificates. China Construction Bank had 772 wealth management outlets nationwide by the end of the first half of its 2007 financial year.
The entry level for private bank clients tends to vary from place to place. At Citic it’s Rmb8 million ($1.14 million) in assets, and at China Merchants it’s Rmb10 million. At Bank of China, it’s $1 million, although as Wang Yan in the private banking team there says: "It is not a very strict standard, we will consider the details of the client." ICBC classifies two groups: those with more than Rmb1 million (eligible for wealth management services) and more than Rmb10 billion (private banking).
The trend is towards increasing the entry level, or differentiating a product for richer high-net-worth individuals. Here, the experience of Bank of Communications is illustrative. Two-and-a-half years ago it started a new service for what Dicky Yip, the bank’s vice-president, calls "our up-market customers", for clients with Rmb500,000 and more. After two years and 300,000 clients, it became clear that most of the customers had at least four times that amount of assets, "so we were actually doing some sort of private banking service before we called it private banking".
So at the end of 2007 a more targeted private banking service was launched, through a pilot programme in five cities, combining the onshore service offered on the mainland with the offshore business based in Hong Kong. "Up to a couple of months ago we were focusing on our onshore business, and mainly their wealth inside China," he explains. "But a lot of our customers already have money and assets outside of China. The idea is to provide Chinese customers with the opportunity to invest outside of China and make use of discretionary investment services." The service aims to attract clients with a minimum of $2 million in assets outside China, and ties up with international managers such as HSBC Asset Management for international expertise.