China: Wealth Management
Wealth Management Industry
To put the opportunities for wealth management into context, Boston Consulting Group's 2012 annual wealth report stated that China had 1.43m millionaire households in 2011. In it's 2010 report, the BCG said that less than 1% of households in China held more than 67% of the nation’s personal wealth. Most of the wealthy individuals are living in Beijing, Shanghai, Shenzhen and the east coast cities, and many are entrepreneurs in the real estate, manufacturing, retailing and information technology sectors. BCG thought that as little as 8% of the pool of HINWI wealth (USD2.5 trillion) was then invested offshore, with much of it remaining in cash and represented by physical assets, as wealthy Chinese only gradually come to trust banks or asset managers to look after their wealth.
The China Banking Regulatory Commission (CBRC) issued the Regulations on Commercial Banks Personal Wealth Management Business and the Guidelines on Risk Management for Commercial Banks Personal Wealth Management Business in 2005. These two sets of regulations apply equally to Chinese and foreign-owned banks, and cover both advisory services and direct investment activities on behalf of clients.
Funds available for wealth management include massive slabs of bank deposits which are fleeing the low interest-rate environment of Chinese bank deposits; actually they are negative in real terms. This also partly accounts for the pressure on real estate; no-one wants to be in cash.
CBRC issued Provisional Administrative Rules on Overseas Wealth Management Business by Trust Companies in 2007. The CBRC said it welcomed applications from foreign investors to invest in trust management companies.
One problem faced by wealth managers in China is that regulation is divided strictly by sector, so that any kind of complex product may require authorization by two or more different regulators. The main regulators are:
- The China Banking Regulatory Commission (CBRC), responsible for banking and deposit-taking financial institutions;
- The China Securities Regulatory Commission (CSRC), responsible for securities companies and fund management companies;
- The China Insurance Regulatory Commission (CIRC), responsible for insurance companies;
- The People’s Bank of China (PBC, the Central Bank), rsponsible for interest rates and macro-economic policy;
- The State Administration of Foreign Exchange (SAFE, part of the Central Bank), responsible for policies on foreign exchange.
Another problem faced by Chinese wealth managers is a shortage of qualified talent, since the sector is relatively new and there is no pool of experienced managers with in-depth knowledge of the law or good financial skills, let alone knowledge of the wider global wealth management scene. UBS has set up a training academy in Singapore to try to strengthen its team; but of course it is open to poaching by competitors. In-house IT systems are also weak and undeveloped.
Nonetheless, the sector is a magnet for firms and individuals.