Private banking took shape in China, nearly in the year 2000 when Royal Bank of Scotland and Bank of China jointly introduced private banking services. More than 4 decades of strong growth in the Chinese economy has led to rise in private wealth to great extent. This has created a humungous market in terms of private wealth management as the number of high net worth individuals is on the rise. With capital market getting mature and private wealth increasing at an increasing pace, private banking in china has grown significantly.
According to the study, ‘WEALTH IN CHINA: HNW INVESTORS 2018’, the recent years have witnessed new trends in the Chinese economy that are shifting the landscape of the private banking environment. The private wealth is on the rise; however the quality returns on assets have come under pressure. This has resulted in huge wealth seeking scare high quality assets that has caused a shift in the expectation of both banks and individuals. The demands and requirements of HNW clients across china have changed. They have diverse demands on not only look forward for wealth preservation but also succession planning. The competition within private wealth management has intensified which has resulted in a more robust and enhanced banking mechanism. This well help banks to over step the boundaries set by cross border banking and come up with new business plans.
Chinese HNWs are still expanding their business. They prefer to reinvest their wealth in their own enterprise rather than preserving it. This preference is proven by the fact that returns on financial instruments issued by institutions have been relatively lower as compared to return on business and real estate.
The three prime reasons that HNWs do not prefer to have their wealth managed by financial institutions are:-
- The first generation entrepreneurs rely on their own ability to make financial decisions and prefer to decide their own wealth appropriation into different assets.
- Capital markets in China are still immature and have lacked high degree of efficiency.
- The Chinese HNWs prefer to maintain confidentiality when it comes to financial matters. The wealth managers are unable to provide this confidentiality since they lack specialized teams.
The competition dynamics in the private wealth management business are being disrupted as new players enter the market. Majority percentage of high net worth individuals are currently not being served by any wealth management business. This implies that new companies entering the space do not have to gather their market share from existing companies but rather have the opportunity to gather it directly from clients that are not being served. Third party wealth managers, trusts, banks all these are adding vitality in the industry. However, commercial banks tend to possess an advantage over the other business models due to established business and existing clientele.
The various wealth management products include property investment, capital markets, bank wealth management products, overseas investment, life insurance and other domestic investment products. This share is led by property investment due to their inclination towards real estate investments.
There are various wealth management products being floated into the market by the big four. However the real potential of the market has not been tapped into as majority of the wealth is stored in form of cash only. This makes Chinese wealth management industry lucrative and as more companies enter this space, it will become more dynamic and fast paced.
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Ankur Gupta, Head Marketing & Communications