While global markets experienced tremendous volatility and uncertainty in 2011, the Chinese government continued its efforts to tighten its monetary policy and transform the country’s economic structure. In this report, we reassess the present and future of China’s private-banking industry at a time of increasing economic and social complexity and change.
The Boston Consulting Group (BCG) and the China Construction Bank (CCB) have worked together to assess China’s wealth market and the key characteristics of the affluent population based on detailed modeling of the present and future of China’s wealth market, through surveys of more than 2,000 high net worth (HNW) individuals, and with interviews with a number of private bank relationship managers. As a result, this report aims to present a clear group profile of private banking clients and many other findings of China’s wealth market.
Despite the global macroeconomic uncertainties, China’s private-banking sector continues to be a bright spot. By the end of 2011, the total value of investable assets1 of Chinese individuals is set to reach RMB 62 trillion, which represents a compound annual growth rate of 32 percent over the past three years. Of that RMB 62 trillion, RMB 27 trillion will be held by HNW households, each with at least RMB 6 million in investable assets. At the same time, the total number of Chinese HNW households is set to reach 1.21 million by the end of 2011, having grown at 42 percent over the past three years.
China’s major municipalities and provinces along the eastern seaboard, including Beijing, Shanghai, and Guangdong, continue to have and attract an affluent population. However, wealth is spreading across the country. The number of HNW individuals is soaring in places such as Shanxi, with its abundance of natural resources, and Hainan, where local prosperity is largely due to a boom in travel and real estate. The growth rate of HNW households in Central and Western China, including in the provinces of Gansu, Anhui, and Guizhou, is outpacing the growth rates in other areas.
Close to 60 percent of China’s HNW individuals are private entrepreneurs who started their own businesses and became wealthy. Our survey reveals that these individuals have divergent views on the financial markets, investments preference, risk appetite, and to a larger extent, the meaning of wealth. Very few of them, however, have a sufficient understanding of private banking and the products and services it offers. Although these HNW individuals appear to be concerned about preserving their wealth and their way of life and educating their children, they increasingly recognize the importance of being socially responsible.
Rapid economic growth is the core driver of the wealth accumulation of HNW individuals and the development of private banking industry in China. However, the recent economic slowdown and tightening of credit posed unprecedented challenges to the private entrepreneurs. The Chinese government has started to unveil a series of economic policies to support small and medium-sized businesses, and private entrepreneurs have begun to see positive results.
In order to build a sustainable business, China’s private banks must spend more time listening to their clients whose needs, as our survey shows, tend to reflect their educational background, their source of wealth and occupation, the value of their assets, and the region in which they live. By advising them on many fronts, private banks can build long-term relationships and customer loyalty. As clients look for more sophisticated products and services, private banks should try to build a competitive advantage based on innovation and better leveraging of their various institutional resources.
As Chinese entrepreneurs increasingly look abroad to grow and expand their business, offshore private-banking services are sure to be in greater demand. Chinese commercial banks should start preparing for this by testing the ground in Hong Kong, with its distinguished legal, accounting, and regulatory setup. Commercial banks that are interested in building stronger offshore wealth-management capabilities for the long term must begin today.
Chinese private banks—as service provider, wealth manager, and investment advisor to China’s HNW individuals— are in the enviable position of being able to take a leadership role and seize a competitive advantage. A key strategic choice for China’s private banks then is to lead, rather than follow, market developments—to be proactive, innovative, and forward-looking. The investment activities of China’s HNW population tend to have short-term time frames, and many do not regularly communicate with a financial advisor. The door is wide open for financial and wealth management institutions to play greater roles in shaping the financial future of these HNW individuals and assisting them grow their businesses.
1 Investable asset refers to the combined market value of household deposits, treasury bonds, mutual funds, stocks, financial planning products and alternative investments. It excludes real estate property that is either self-owned or for investment purposes, collectables, consumer durables, individual business assets or land resources owned by individuals but have yet been explored.
Frankie Leung is a partner and managing director in the Hong Kong office of The Boston Consulting Group and leads the Financial Institutions practice in Greater China.
Nan Wang is a principal in the Beijing office of The Boston Consulting Group.
Chunqi Wei is the general manager of Wealth Management and Private Banking at China Construction Bank.
Yufang Mei is the deputy general manager of Wealth Management and Private Banking at China Construction Bank.