China’s wealth managers look to profit from crackdowns
The government is trying to clean up and trying to push the money into regulated channels with transparent investment schemes.
HONG KONG: As regulatory crackdowns in China hit risky investment products and capital outflows, the country’s private banks are looking to profit as they target a bigger share of growing wealth in the world’s secondlargest economy.
Wealth managers like Noah Holdings and units of China Merchants Bank and China International Capital (CICC) are casting wider nets to tap affluent clients, who have so far remained outside mainstream private banking.
They are now targeting small cities, where the wealthy have traditionally relied on shadow banking investment products that promise high returns but are illiquid and opaque, according to bankers and consultants working for the wealth managers.
Beijing’s clampdown since last year on sending capital outside the country was also opening up opportunities for domestic wealth managers in China, they said.
China’s onshore private wealth market has grown rapidly in the last few years. This year, it is set to reach US$ 28 trillion, nearly three times the country’s gross domestic product in 2016, making it the second-largest such market after the United States.
But only about 10 to 12 per cent of China’s high net worth individuals, or those with more than 10 million yuan in investable assets, are served by professional wealth managers, which compares with roughly 20 per cent in South Korea and 55 to 60 per cent in the US and Europe, according to Noah.
Wu Bo, CICC wealth management business head
That proportion is likely to rise as wealth managers promote their investment advice and products more widely, and as awareness grows of how to diversify from bank deposits and property investments, the bankers said.
“The government is trying to clean up and trying to push the money into regulated channels with transparent investment schemes,” said Wu Bo, head of CICC’s wealth management business. “That plays to our advantage.” Wu, whose firm manages about US$ 100 billion worth of private individual wealth, said the migration of money to wealth advisors represented an important business opportunity for firms like his.
Chinese wealth managers face little competition from bigger foreign rivals such as Credit Suisse and JPMorgan in the onshore market, said an executive at a consultancy that works with wealth managers.
Regulatory restrictions and a less developed capital market have deterred some global banks from setting up a private banking presence in China.
Offshore businesses remain the preferred route for many international wealth management firms who want to tap into the millionaires spawned by China’s booming technology sector and its surging stock market.
Noah is one of the local private banks who are now looking beyond cities like Beijing and Shanghai, where rivals including HSBC and some fintech giants are expanding their footprints and offerings to serve wealthy clients.
Founded in 2003, Noah, which has assets under management of US$ 63 billion, plans to add more people to win new business in smaller cities such as the industrial centre of Shenyang in the northeast and the coastal city of Wenzhou.
“We see a lot of entrepreneurs in the second- and third-tier cities who are low-profile,” said Noah’s president, Kenny Lam, referring to cities with populations of about seven to 10 million.
Noah plans to increase its headcount of 1,200 by five to 10 per cent a year for the next three to five years in order to tap those opportunities.
In places like Wenzhou, Lam said: “When you see them, you don’t know them having hundreds of millions, they will be in a t-shirt and jeans and say ‘Kenny, can you teach me about private equity?’.” — Reuters