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May 1, 2008updated 04 Apr 2017 3:57pm

Chinese private banking gaining currency

Unsurprisingly, private banks both domestic and foreign are ramping up their efforts to gain a foothold in the region. The big boys have long had operations in China in preparation for an easing of regulatory pressure, and are now applying for renminbi-denominated licences in order to better attract Chinese clients. Deutsche Bank (China) began operation on 2 January following approval from the China Banking Regulatory Commission (CBRC) to incorporate in Beijing and will now offer renminbi-denominated products and services across its branches in Beijing, Shanghai and Guangzhou.

By PBI Editorial

The race to take advantage of the mushrooming Chinese wealth sector is showing no sign of slowing down. Boston Consulting Group predicts the number of dollar millionaire households in China will almost double from 310,000 at the end of 2006 to 609,000 by 2011. Unsurprisingly, private banks both domestic and foreign are ramping up their efforts to gain a foothold in the region.

The big boys have long had operations in China in preparation for an easing of regulatory pressure, and are now applying for renminbi-denominated licences in order to better attract Chinese clients.

Deutsche Bank (China) began operation on 2 January following approval from the China Banking Regulatory Commission (CBRC) to incorporate in Beijing and will now offer renminbi-denominated products and services across its branches in Beijing, Shanghai and Guangzhou. UBS and BNP Paribas are among the others awaiting approval for renminbi licences, while HSBC, which launched its locally incorporated HSBC Bank (China) last year, began to offer private banking services in Beijing, Shanghai and Guangzhou this April.

Société Générale is also looking to launch wealth management products this year, subject to its Chinese operations being approved for local incorporation in May. Schroders, meanwhile, has taken advantage of new regulations allowing fund management firms to offer wealth management services and has signed initial deals through its Bank of Communications Schroder Fund Management joint venture.

Despite such progress, the regulatory environment is still highly challenging, with restrictions on product offerings and strict currency controls. Indeed, the CBRC  issued a note in April criticising what it claimed were six deficiencies present in some Chinese wealth management businesses, including inadequate risk controls and staff who are “not competent at their work”.

Another challenge faced by the global players is from Chinese banks themselves. The Industrial and Commercial Bank of China saw wealth management profits rise by 65 percent in 2007 and plans to create a dedicated private banking service this year, while the Bank of Communications has announced its intentions to become a leading wealth management player by 2011. The Bank of East Asia will add 20 mainland private banking outlets to its existing 53 offices in 2008, while Bank of China, CITIC Bank and China Construction Bank are also home to nascent private banking services.

China Merchants Bank is even more bullish following the launch of its wealth management offering in Beijing last year. The bank will launch new offices in Shanghai, Hangzhou and Nanjing in 2008.

The fast pace of expansion is reflected in the take up of wealth management products. The CBRC has said that RMB600 billion ($85.6 billion) worth of such products were sold in the first nine months of 2007, and estimates the figure for the last quarter of the year stood at some RMB400 billion.

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