Rich and elite Chinese are increasingly relocating abroad, taking significant portions of their financial assets with them. This movement of high net worth individuals could prove to be a major opportunity for private banks to cultivate clients from Mainland China.
Taking advantage of new freedoms, increasing numbers of wealthy Chinese are moving their residence, and their assets, abroad. The scale of the exodus was spelled out at the PBI Greater China conference, held in Hong Kong on 11 May.
New research from Bain & Co (see ‘2020 vision: developed markets on top’) found 60% of China’s high net worth individuals (HNWIs) surveyed by the consultancy will emigrate or are planning to apply for emigration.
Bain’s report also showed that the trend to seek to emigrate is highest among China’s wealthiest: 27% of entrepreneurs with a net worth of $15m or more have completed the formalities required to immigrate through investment schemes in countries like the US or cities like Hong Kong.
Chinese HNWIs moves impacting industry
Conference delegates heard that the movement of Chinese abroad is already impacting on the wealth industry, providing new opportunities to handle the complex financial and investment needs of mainland wealthy who are looking to relocate.
The wealth industry itself is already adapting to these outflows, with firms shifting bankers from the mainland back to centres like Hong Kong and Singapore as they rebalance to attract this offshore business.
“Onshore People’s Republic of China [PRC] bankers are moving to offshore in Hong Kong or Singapore,” said Nick Lambe, managing director of recruiters Morgan McKinley Hong Kong.
“The majority of the [Mainland China] ultra HNW business is handled offshore in Hong Kong or Singapore.”
Offshore moves threaten maturing market
The shift of Chinese abroad is already having some impact on the fledging domestic Chinese wealth management industry, say bankers.
This haemorrhage of advisory talent could, at worst, leave the bulk of the wealth management business skewed on the mainland towards upmarket retail and priority banking.
This could potentially hamper the development of a sound and sophisticated onshore private banking industry in China.
Still, bankers stress the actual shift of money out of China is not yet huge, not least because investors, used to the high returns from real estate and stocks in the PRC, can not yet find the type of yield they are used to at home. So a brain drain of the elite is not so far being matched by a major capital drain.
The shift abroad is still seen as the most significant movement of Chinese wealth since the handover of Hong Kong by Britain to China in 1997.
Statistics on the scale of the foreign exodus so far are sparse. One clue has come from a report by the Overseas Chinese Affairs Office under the State Council, which estimated the number of Chinese nationals living abroad exceeded 45m last year, excluding residents in Hong Kong and Macao. The figure includes the substantial number of Chinese students who go abroad to study.
Lifestyles drive Chinese offshore shift
Bankers believe that there are a number of factors behind the desire of Chinese to move abroad, to favoured countries like Canada, Australia, the UK and US.
Not least is China’s increasing open economy and society. China’s wealthy also see opportunities abroad for business as well as lifestyle decisions like education of their children in Western schools, bankers say.
A number of countries also maintain an open-door policy for the significantly wealthy, which is attractive to Chinese looking for new lives abroad.
In the US, for example, a family with at least $500,000 qualifies for a residency visa.
Most significant of all is the way that China is generating wealthy individuals at rapid rates.
Hurun Report puts CHNWI estimate much higher
The Hurun China Rich List puts the number of millionaires at 960,000 at the end of 2010. Of these, 60,000 had net assets exceeding CNY100m ($15.4m).
The Bain study has more modest projections, forecasting that the number of Chinese HNWIs would rise to 585,000 individuals this year, nearly twice as many as 2008.
In joint research, Deloitte and Oxford Economics project that by 2020, China will become the world’s seventh-richest nation, with $8.24trn held by mainland millionaire households. That compares with China’s 12th position in 2011, with $1.67trn.
The definition of wealth in Deloitte’s study included financial assets (stocks, bonds and other investments) and non-financial assets including primary residence, durables, business ownership and other assets.
These different studies continue to highlight the ongoing difficulty of providing accurate Chinese HNWI estimates.