Wealth Management in China

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Wealth Management in China

Executive Summary

China’s rapid economic growth has created many multi-millionaires, especially in the major cities and coastal regions. The wealth management business is an emerging business in China yet growing significantly fast.

According to the Chinese Wealth Management Market Report by Boston Consulting Group(BCG), China is the largest wealth management market in Asia (exluding Japan), the total household financial wealth has reached $2.5 trillion. From 2001 to 2006, China had the highest compound annual growth rates (CAGRs) in asset under management (AuM), at 23.4 percent, while the global average stayed at 8.6 percent. In 2006 only, total AuM in China increased by 31.6 percent. BCG predicted that in the next years, the household financial wealth in China would keep increasing by around 17.4 percent annually and by 2011 the total asset under management would reach $5.5 trillion. (Shanghai Securities Daily, 2007-10-31) The fast growing wealth management market in China is primarily driven by the soaring number of HNWIs (high net worth individuals), the fast development of the economy, the opening-up of its financial market, and the changes of its regulatory framework. However, due to the history of the Chinese economic development and the specialty of the country, the wealth management is mainly provided to mass affluent people. The true private banking business under western criteria can hardly be found in this market.

What is wealth management in China?

There is no commonly agreed definition in the industry globally. According to UBS, a global leader in wealth management with history of 140 years in the industry, wealth management services are designed for high-net-worth and affluent individuals around the world, whether investing internationally or in their home country. Service providers provide tailored, unbiased advice and investment services — ranging from asset management to estate planning and from corporate finance to art banking. The business, global in scale, is focused on growth.

In China, the concept of wealth management is just beginning to take hold among Chinese banks. Personal financial service is believed to be the preceding of wealth management business. According to the Provisional Rules for Personal Financial Service of Commercia Banks, personal financial service refers to specialized services provided to individual clients by commercial banks, including financial analysis, financial planning, investment advisory and asset management, etc. This business is provided by most commercial banks.

China Construction Bank(CCB), one of the largest four commercial banks in China, set up its first wealth management center in Shenzhen in October 2007 . It provides client memebers with minimum personal assets of RMB 3 million (around $435,000) with tailor-made financial services include traditional banking services, advisory services, trading of bonds and stocks on behalf of clients, etc., and other non-financial value-added services. (Tang, 2007)

Lian Ping(2007), Chief Economist of Bank of Communications, indicates that wealth management is different from personal financial service . Wealth management service is provided by financial institutions to HNWIs according to the demand of clients, to balance the relationship between the income and payment of the client accounts in order to add value to clients. The phylosophy is to plan and manage wealth on clients’ behalf with long term view. The service includes cash management, asset management, insurance, loans, retirement and legacy planning, and tax planning.

Who are HNWIs and what do they need?

"The rapidly expanding population of high net worth individuals in China made it very clear that private banking was an area of real opportunity," said Fred Goodwin, the Chief Executive of Royal Bank of Scotland. (Plafker, 2007) But who are HNWIs?

National Bureau of Statistics of China conducted a...
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