Jun. 11, 2009
The number of millionaires in China has grown drastically over the last few years. As a consequence the private banking activities have grow as well. In a recent publication by China Research & Intelligence it is estimated that nearly 1 million Chinese households have financial assets exceeding USD 1 million. The yearly additional to this millionaires club at the rate of 20%+ is accompanied by an ongoing expansion of private banking activities by Chinese and foreign banks.
Though the first bank exclusively targeting wealthy customer in China opened less than four years ago, the scene today is that many Chinese and foreign banks vying with one another for rich clients. The private banking arm of China Merchants Bank alone opened seven private banking centres throughout China in 2008, increasing the assets under management by 34% in a year to about USD 19 billion. Other Chinese funded banks such as Bank of China, ICBC China and most recently the Agricultural Bank of China are too expanding their private banking activities at a greater pace.
Leading foreign banks such as HSBC, Deutsche Bank and Standard Chartered have joined the fray and expanding their presence in China as well. However, it remains to be seen if they can recruit local talent fast enough to overcome cultural barriers. But unlike their Chinese competitors, these international banks can bring a vast experience in private banking to the table.
We think that in the long-term the growth of wealth in China would support a large number of players of local and international origin. The closure of Citi Banks Chinese private banking division in January this year more likely reflects internal problems than any lack of opportunity to seize market share. The Chinese market for private banking, however, is still immature and strictly regulated. It will take time and effort to educate human resources as well as clients.
However, the high ongoing growth of wealthy households as well as inflow of offshore money will reward the patient service provider.
The wealthy Chinese clients have now to decide whether to go for local banks with their in-depth knowledge of the Chinese market and culture or international players, experienced in private banking but still learning about banking in China. In both cases they risk being guinea pigs to some extent. A careful check on the private banking and cultural experience of the adviser is mandatory to reduce this risk.