HNWI trends in China

• There were 1,361,460 HNWIs in China in 2015, which collectively held US$5.0 trillion in wealth.
• The Chinese HNWI population decreased by 1.0% in 2015, following a 4.2% increase in 2014.
• The Chinese HNWI population is forecast to grow by 19.5%, to reach 1,644,465 in 2020, while HNWI wealth is projected to grow by 31.0%, to reach US$6.7 trillion.

Asset allocation of HNWI investments

• Equities was the largest asset class for Chinese HNWIs in 2015, accounting for 30.6% of the total, followed by real estate (27.9%), business interest (22.1%), cash and deposits (13.1%), fixed income (3.5%) and alternatives (2.8%).
• Business interest recorded the highest growth during the review period, at a rate of 59.4%. Real estate recorded the second-highest rate, at 46.5%.
• Alternative assets held by Chinese HNWIs decreased from 3.5% to 2.8% between 2011 and 2015. HNWI allocations to commodities decreased from 1.8% to 1.0% of total assets during this period.
• Chinese HNWI liquid assets valued US$2.4 trillion as of 2015, representing 47.2% of total wealth holdings.

Geographic distribution of HNWI investments

• Chinese HNWIs held 27.9% of their wealth (US$1.4 trillion) outside their home country in 2015.
• Foreign asset holdings are expected to increase to US$1.8 trillion by 2020, accounting for 26.9% of the country’s total HNWI assets.
• The Asia-Pacific accounted for 62.2% of Chinese HNWIs’ foreign assets in 2015. This was followed by Latin America (12.9%), North America (7.9%), the Middle East (6.6%), Europe (5.4%) and Africa (5.0%).
• Chinese HNWI allocations to the Asia-Pacific decreased during the review period, falling from 64.9% in 2011 to 62.2% in 2015.
• WealthInsight expects HNWIs to decrease their level of investment in the Asia-Pacific over the forecast period, to reach 59.2% of foreign HNWI assets by 2020.

HNWIs – demographic and sector trends

• The number of HNWIs who acquired their wealth through the financial services industry increased by 20.1%, and the highest review-period growth of 29.4% was recorded in the technology and telecommunications sector.
• The average age of HNWIs in China is 55. In total, 44.9% of Chinese HNWIs were aged 51–60 in 2015.

UHNWIs – volume and wealth trends

• There were 8,466 UHNWIs in China in 2015, with an average per capita wealth of US$174.6 million, making them the prime target group for wealth sector professionals. Of this total, there were 213 billionaires, 2,745 centimillionaires and 5,508 affluent millionaires.
• UHNWIs accounted for 0.6% of China’s total HNWI population in 2015. The number of UHNWIs rose by 22.4% during the review period, going from 6,918 in 2011 to 8,466 in 2015.
• WealthInsight expects the number of UHNWIs to increase by 21.6%, to reach 10,704 in 2020. This will include 269 billionaires, 3,456 centimillionaires and 6,979 affluent millionaires.

Competitive Landscape

The Chinese banking sector is regulated by the People’s Bank of China, which was established in 1948. According to the World Economic Forum’s Competitiveness Ranking 2015-2016, the Chinese banking system is ranked 78th among 140 countries.

In the early 1980s, conditions changed when the government opened up the banking system and allowed four state-owned banks to take deposits. These were: Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC) and Agricultural Bank of China (ABC). As the economy skyrocketed in the past few decades, China’s financial system grew exponentially. By the end of 2008, a stimulus package to counter the economic crisis saw bank assets grow by 25% in a single year.

Along with a rise in assets, bad loans increased to CNY2.2 trillion (US$330 billion) in 2015, as economic slowdown set in and debt grew. Although bad debt is almost equal to 3% of China’s GDP, it may not be alarming, as China has a forex reserve of around US$3 trillion.

Private banking in China has increased manifold with the rise of HNWIs in the region, but with strict restrictions; the private banking market is dominated by domestic banks. Although the numbers of HNWIs in China have grown, the investment products available to them are limited. This has compelled HNWIs to seek out those private banks offering investments in off-shore assets. Alongside a lack of investment opportunities, a lack of skills in the private banking industry is causing difficulties.

China’s wealth management and private banking sector comprises the following types of service provider:

• Domestic private banks
• Foreign private banks
• Wealth managers
• Family offices

1.1         Domestic Private Banks

Domestic private banks are the main competitors in the private banking market, as it is easier for domestic banks to do business in China than their foreign counterparts. Some of the most prominent domestic private banks in China are China Merchant Bank, Industrial and Commercial Bank of China and China Minsheng Bank.

China Merchant Bank private banking provides services to its clients, with CNY10 million (US$1.5 million) in assets. Its private banking arm was established in August 2007, and the Shenzhen branch was the first to provide private banking services.

Industrial and Commercial Bank of China started its private banking operations in March 2008, and was the first bank of China to receive a private banking service financial permit issued by the China Banking Regulatory Commission. It provides services to clients with assets of CNY8 million (US$1.2 million) and above.

China Minsheng Bank started its private banking services in 2008, and established private banking in 33 of its branches in China. The bank provides financial and non-financial private banking services to clients with assets of CNY8 million (US$1.2 million) and above.

1.2         Foreign Private Banks

Foreign private banks are not a dominant force in the Chinese market, due to strict regulations. Some of the prominent foreign private banks in China are CitiBank, BNP Paribas and HSBC.

Citibank has had a presence in China since 1902, when it established its first office in Shanghai. In 2007 it became one of the international banks to become incorporated in China. As of 2015, Citi has branches and sub-branches in 13 cities.

BNP Paribas has had a presence in China since 1860, when it opened its first branch in Shanghai. As of 2015, the bank had 500 staff providing banking, financing and advisory services.

HSBC started its Chinese operations in April 2007 as a locally incorporated foreign bank. HSBC has around 6,000 staff across 170 outlets in 50 cities; the largest service network of any foreign bank.

1.3         Wealth Managers

China’s private wealth market recorded an annual growth of 16% from 2012 to 2014. As of 2015, it surpassed the US$3 trillion mark.

The China Banking Regulatory Commission may impose tighter rules for the nation’s market for wealth-management products, as the government moves to rein in shadow-financing risks.

Larger, better-capitalized banks will be permitted to conduct comprehensive wealth management business and invest in riskier assets such as equities.

Some of the leading wealth managers of China include: CICC Wealth Management; Bank of Jiangsu Co., Ltd; and Noah Holdings Limited.

1.4         Family Offices

Family offices are a relatively new concept in China and typically provide more customized products than wealth managers and private banks, such as the management of household staff and property, philanthropy coordination, children’s education, intergenerational transfers, legal, tax and investment services.

Some of the leading family offices in China include: Liaoning Xinglong Happy Family Business; Fazheng Group; and Fusion Family Office.

Single-family offices (SFO)

An SFO is an entity created by a single family to manage its investments and financial affairs. SFOs generally take the form of a private company that manages the investments and trusts of UHNWIs (with more than US$100 million) and their extended families.

An SFO usually have a small team consisting of a lawyer, an investment specialist, a tax lawyer and an accountant.

Multi-family offices

Many UHNW families in the US$30–100 million bracket do not have the economies of scale to establish standalone family offices. Multi-family offices cater to these families, allowing them to co-invest and share due diligence and other administrative costs with other families.

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