China’s eastern superpower
cities of Beijing and Shanghai may be where most of today’s high
net worth (HNW) wealth is concentrated, but new research suggests
lesser-known centres like Hangzhou, Wuhan and Chongqing could be
ultra HNW hotspots by 2015.
China’s rapidly expanding onshore wealth market is
well documented, as are its prospects for future growth, but new
research has attempted to shed light on some of the lesser known
hot spots for Chinese high net worth individuals (CHNWIs).
WealthInsight, a new data-backed
research provider, has come up with a set of predictions of what
China’s HNW landscape will look like in 2015 – which has thrown up
some interesting conclusions about the key second tier cities for
growth and how non-Chinese foreign banks can gain a foothold.
WealthInsight’s 158-page report,
The Future of HNWIs to 2015: Opportunities for Wealth Sector
Professionals, looked at a forecast period stretching back to
2007 and forward to 2015. It says HNWI numbers are expected to grow
at a CAGR of 13.5% during the forecast period.
Despite some concerns for China’s
economic outlook, China will continue to be fertile ground for the
creation of HNWIs, with more than 845,000 Chinese joining the ranks
of HNWIs between 2011 and 2015 – almost 10 per day – and the total
increasing by 66% to reach 2,125,000 by 2015 (see
During 2011–2015 billionaires will
again lead the way, recording tremendous growth in wealth and
By 2015, WealthInsight forecasts
that billionaires will record truly phenomenal growth, increasing
their wealth by over 600% and their volumes by over 450%. All other
bands will have strong growth of between 100% and 180%.
WealthInsight’s senior analyst,
Stephen Gross, who spent three years in China and was one of the
report’s authors, says traditionally much of this wealth
accumulation has happened on or close to the Eastern coast of
China, among the large Tier 1 cities like Beijing, Guangzhou,
Shanghai and Shenzhen – China’s most prosperous and developed
regions and cities.
One the key conclusions of
WealthInsight’s research is that Tier II and Tier III cities
including Hangzhou, Wuhan, Chongqing, Chengdu and Fuzhou provide
latent and significant untapped potential for wealth managers and
private banks (see chart).
“The story of the past few years
has been the Tier 1 cities, but we really think that the story is
moving more towards the West and to the Tier II and III cities,”
WealthInsight has created a rating
system to give a sense of which of these Tier II and III cities has
the greatest potential.
The rating is based on a number of
city-specific criteria including: the market penetration of the
wealth sector, growth across industries over the coverage period,
the number of UHNWIs, the cultural and political circumstances, and
the environment for and towards UHNWIs.
Hangzhou came out on top for a
number of reasons, says Gross. Hangzhou is easily accessible from
Shanghai – just 45 minutes by high-speed rail – and though not
included on many international indices, Hangzhou has an excellent
quality of life for a Chinese city.
Hangzhou is regarded by many
Chinese as having the highest quality of life of any Chinese city.
Many HNWIs and UHNWIs have moved from other parts of China,
especially from Shanghai, to Hangzhou over recent years. This trend
is forecast to continue over the forecast period, and may even
accelerate, the report says.
This is not to say that Hangzhou is
not on bank radars. Major global banks such as HSBC, Citibank and
Standard Chartered, as well as big Asian banks such as the Bank of
East Asia, Hang Seng Bank and Nanyang Commercial Bank, all have a
presence in Hangzhou, says WealthInsight’s report.
These established players offer
some form of wealth management and private banking services for
HNWIs and UHNWIs however, most have geared their businesses in
Hangzhou primarily for the mass affluent segment ($100,000 to $1m),
where they face significant competition from Chinese banks, the
“There remain significant
opportunities for wealth managers and private bankers to set up
compelling and focused white-glove operations catering specifically
for the needs of HNWIs and UHNWIs in Hangzhou,” the report
Gross also tips Chengdu and
Chongqing, which make up the Chengdu-Chongqing Economic Zone
(CCEZ), as two strong growth nodes for foreign and Chinese wealth
study underlined the relative underdevelopment of China’s wealth
industry, albeit at the same time as China’s big four banks
establish more sophisticated private banking services.
The study acknowledges that big
banks such as Industrial and Commercial Bank of China, Bank of
China, Agricultural Bank of China and China Construction Bank, have
first-mover advantage as they already have relationships and
offices established in many of these HNW hotspots.
They also already have existing
relationships with clients through their business banking.
“The race is on and those banks are
out in front. Now are they as fast or as fleet of foot as some of
the big global banks? Probably not – but they do have on-the-ground
advantage and they do have a head start,” says Gross.
Still, opportunities exist for
foreign players to provide the kind of sophisticated advice and
high-grade investment research, which has yet to develop within the
big local banking groups.
Another significant trend that
could play into foreign bank’s hands is the desire of Chinese HNW
to increasingly move their investment offshore (see Going Global). Chinese HNWIs currently
hold 16% of their total assets abroad, the report estimates – with
about 70% allocated to the Asia-Pacific region. Within the next
three years, Chinese HNWIs will increase their foreign holdings to
21% by 2015, when foreign asset holdings are forecast to reach
WealthInsight’s research suggests
over 50,000 Chinese HNWIs are looking to move abroad each year.
Much of the buoyancy in Hong Kong’s property market is due to
demand from Chinese HNWIs, who buy luxury homes in Hong Kong to
gain Hong Kong citizenship.
The desire for China’s HNWIs to
move abroad reflects various issues within the country: first and
foremost, China’s HNWIs are concerned that the government may use
the rich as a scapegoat and crack down on them in future if social
unrest grows, WealthInsight says.
The research confirms findings in
Bain & Co’s 2011 research that emigration is a key concern for
All these factors suggest that although non-Chinese private
banks have found gaining a foothold in the onshore market
difficult, there remain significant opportunities. Getting to grips
with China’s Tier II and III cities could hold the key to this