Chinese HNWIs are the hottest property in global private
banking circles, but understanding their preferences is not always
straightforward. Galen Stops reviews soon-to-be-released research
from VRL that highlights the rapid growth of its trust market on
the back of China HNWI’s love affair with real estate.
Go deeper with GlobalData
It’s been well
documented that the ranks of high net worth individuals (HNWIs) in
China is swelling and only set to continue growing. Yet to date,
getting a strong sense of who these Chinese HNWIs are, how they
manage their wealth and what they want from their banks has been
challenging.
VRL’s new 150-page report The
China HNW Market by Beijing-based author Jing Xu examines the
current and future market trends and looks at how to harness the
opportunities they represent.
Xu interviewed private bankers,
property companies, HNW individuals for the study and has come up
with some interesting results.
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By GlobalDataLow density
As a generalised snapshot, Chinese
HNW are likely to be city dwelling entrepreneurs who made their
fortune in real estate and prefer medium-risk investments. They
want professionalism from their private bank and there is
increasing interest in investing in trust products.
Despite having a large number of
HNWIs, the size of China means that across the country there is
still a very low density of them. The geographical spread of these
HNWIs across China can pose problems for companies trying to
penetrate this market and deliver services to their markets.
Most of China’s HNWIs can be found
in the major urban areas of the country with Beijing (170,000),
Guangdong (157,000) and Shanghai (132,000) containing 48% of
China’s HNWIs. VRL’s report notes that as a result most strategies
employed by wealth management firms have focused on these
areas.
However, with the number of HNWIs
in inland provinces growing at a faster rate than in these urban
cities and with vast fortunes being hidden in rural areas for tax
reasons, these less developed areas could offer a lot of potential
for private banks and wealth managers.
Trust products increasingly
popular
The trust
industry is one of the hotspots for Chinese HNW investor interest.
A survey of 980 Chinese HNWIs with more than $1.5m in investible
assets found 56% chose trust products as their favourite private
banking products.
The value of assets in the trust
industry in China is accelerating and has increased annually by as
much as 60% since 2009. The annual revenue of the trust industry in
China currently stands at around CNY28.4bn.
Trust products in the real estate
industry have proved particularly popular in China in recent years.
In 2010 the total amount of trust products in the real estate
industry soared to CNY 235bn, increasing by 384% from 2009.
At present the collective trust
products in the real estate industry account for up to half of the
total volume of the collective trust market.
Our report notes that the
flexibility of trust products is one of the things that makes them
so popular among China’s HNWIs and predicts that they will continue
to act as an important method of raising capital.
Medium-risk rate
preferred
There has been a rapid development
in the in the Chinese private wealth management market in the past
three years. Under the guidance of professional wealth management
institutions, Chinese HNWIs’ investment appetite is maturing.
This means that their risk appetite
tends to be more prudent than before and their investment
objectives become more diversified.
Our research shows that since 2009
the number of Chinese HNWIs favouring wealth management products
with a medium return rate has risen to about 70%, meanwhile those
choosing low-risk low-return and high-risk high-return products has
declined (see chart).
When choosing which private bank to
use Chinese HNWIs look primarily for performance on investment
returns and at the professionalism of the private banking services
on offer (see chart).
Things such as the global resources
of the bank, their international brand and any services not
directly linked to maintenance and appreciation of the value of
assets are not necessarily criteria in their selection.
Real estate and manufacturing
the main source of wealth
When comparing the sources of their
fortunes, the research report illustrates some striking differences
between how Chinese HNWIs made their money compared to HNWIs in the
rest of the world.
For example,
23.5% of China’s HNWIs fortune comes from the real estate industry,
making it the most successful industry for HNWIs in China. In
contrast the real estate industry accounts for just 9% of the
global HNWI fortune.
Many HNWIs have been able to
utilise China’s cheap, labour-intensive, manufacturing industry to
generate wealth.
As a result 19.1% of China’s HNWIs
made their money in the manufacturing industry compared to 8.5% of
HNWIs across the globe.
Meanwhile finance and investment,
which accounts for 19.2% of the wealth of HNWIs globally, is the
source of only 6.7% of China’s HNWI wealth.
China’s HNWIs are also distinct
because they are largely first-generation wealth owners.
In China, the owners of private
businesses make up 71.6% of the HNWI population while successors to
family businesses make up just 1.43%.
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Webinar: Join PBI on
14 February at 0800 GMT or 1600GMT for a preview of the report in
our webinar ‘The China HNW Market in 2012 – Meeting the challenge
of client expectations’. Beijing-based author Jing Xu will draw on
the findings of her research.
To register for the webinar, please contact Jessica Le Huray at:
+44 (0)20 7563 5668, Jessica.LeHuray@vrlfinancialnews.com
-
Report: To pre-order a copy of the
report, or request more information, please contact either Jeannie
Lam (EMEA) at: +44(0)20 7563 5605, jeannie.lam@vrlfinancialnews.com
or Christina Yeo (APAC) at: +65 6383 4688, Christina.yeo@vrlfinancialnews.com.
