China is anticipated to grow on average by 7.1%* a year to 2017 in terms of GDP, the fastest rate among BRIC markets, Private Banker International can report.
According to data gathered by sister company WealthInsight, China is forecast to overtake the US as the world’s leading economy by 2019.
The Chinese government announced this month a new reform to invigorate the state-owned financial sector and allow private ownership of banks.
This will inevitably lead to the availability of credit to the growing middle class which will witness an increase in their spending power, while providing a new source of revenue to high net worth individuals.
There were 1.4 millionaires in China holding US$5.2 trillion in wealth in 201, which equates to 27% of the total individual wealth in the country.
To date most Chinese millionaires, roughly18.1%, have acquired their wealth by diversifying their portfolio within major industries such as basic materials, real estate, manufacturing, technology and to a lesser extent financial services. Chinese retail and technology companies have been providing online financial services including payment systems, loans and some investment products.
In spite of that the source of wealth in China is in contrast to both Singapore and Hong Kong where financial services is prime.
The recently announced reform will open up a new revenue pool for the Chinese HNWIs, while small to medium-size companies will benefit from access to easier credit. This is due to traditionally relying on informal sources as a result of the lack of lending infrastructure. Although widely cited that the newly created banks will largely target private firms due to higher interest rates they can charge, there is a sizeable opportunity to target the consumer sector.
Those who will be quick to take advantage of this opportunity and reinvest their fortune into financial services may be tomorrow’s leaders. The example of the Russian Standard Bank has demonstrated that.
In 1999, billionaire Roustam Tariko, who made his fortune in vodka, established Russian Standard Bank, pioneering the consumer credit market. In just three years his company became the country’s largest consumer lending bank, and holds over one-third of the market share of the country’s credit card market.
China is in a better position to learn from the financial crisis of 2008 by treating lending responsibly. We do not want to witness another financial bubble so responsible lending will need to be ensured as China is forecast to overtake the US as the world’s leading economy by 2019.