CHINA'S POPULATION OF HIGH NET WORTH INDIVIDUALS SWELLED TO MORE THAN ONE MILLION IN 2014, DOUBLING FROM JUST FOUR YEARS AGO
A Bain & Company survey identifies the emergence of a new segment, the ‘newly rich,' driven by the growth of innovative industries such as IT, biotechnology and alternative energy, across the country
Beijing – 26 May, 2015 –China's total private wealth market achieved 16 percent annual growth between 2012-2014 and reached 112T renminbi (RMB) in 2014; this is according to the fourth China Private Wealth Report, developed by Bain & Company in collaboration with China Merchants Bank, a leading private banking brand in China and one of the country's leading retail banks. The study, which includes a survey of approximately 2,800 Chinese high net worth individuals (HNWIs; those who have individual investable assets in excess of 10 million RMB, or approximately $1.6M USD), found that the country's HNWI population exceeded 1 million last year – twice that in 2010. Data also suggest that the total China private wealth market will continue to grow in the near-term and is projected to reach 129T RMB in 2015.
According to Bain's research, China's HNWIs are adjusting their investment strategies based on domestic reforms. More than one-third (36 percent) of HNWIs surveyed said that they expect to increase their investment in innovative industries such as IT, biotechnology and alternative energy. In addition, less than 10 percent of HNWIs expect to increase their investment in more traditional manufacturing industries.
The accelerated growth of innovative industries is driving the emergence of a new HNWI segment, the ‘newly rich' – young Chinese citizens (80 percent are under 50 years of age) who have rapidly accumulated their wealth and transitioned to HNWI status in the last few years. As a result, the HNWI population is now more diversified, encompassing both entrepreneurs who opened factories decades ago, as well as younger professionals in the technology sector and other emerging industries.
"China's HNWIs are driving the growth of the country's real economy, particularly in key innovative sectors, which is helping to fuel the economy and advance innovation," said Alfred Shang, Bain partner and co-author of the report. "Among the newly rich HNWIs, we're seeing a more aggressive investment style, an openness towards alternative investments, and increased focus on wealth creation, second only to wealth preservation as their primary wealth management objectives."
For nearly two-thirds of HNWIs surveyed, "wealth preservation" remains the top wealth objective, followed by "wealth inheritance," which surged from the fifth priority in 2013 to the second last year, particularly among the ultra-HNWIs. Bain also found that wealth inheritance has taken on new meaning beyond passing on material wealth and financial planning. Sixty-five percent of respondents said they also want to leave a legacy of spiritual wealth, including instilling a strong work ethic, the importance of education, family values, etc.
HNWIs' interest in overseas investment continues to increase. Nearly 40 percent of HNWIs and almost 60 percent of ultra-HNWIs indicated that they have overseas investments – a sizable jump from 19 percent and 33 percent, respectively, in 2011. Nearly half of the HNWIs said that they plan to increase their overseas investments in the next year or two, attracted by the more diverse offering of cross-border investment opportunities. In response, many Chinese private banks are investing heavily to expand their overseas service platforms and capabilities to better serve Chinese HNWIs' overseas banking and investment needs.
According to Bain's research, HNWIs are entrusting an increasing "share of wallet" – or a percentage of their investable assets – to private banks or other high-end wealth management institutions. In 2015, HNWIs put 65 percent of their investable assets in the hands of third parties – a considerable jump from 25 percent, on average, in 2009.
While Chinese banks remain the first choice for HNWIs to meet their changing and growing onshore wealth management needs, Jennifer Zeng, Bain partner, who co-authored the report, says that wealth management institutions need to continue to adapt to their customers' changing needs and preferences. This includes continuously improving customer relationships and actively exploring innovative service models, such as fee-based asset management services.
"It's no longer enough for banks to focus only on product offerings. They also need to offer trusted and reliable services, such as asset management and relationship management, in a bid to improve customer ‘stickiness' and loyalty," said Zeng. "Our survey bears this out. More than half of all respondents cited expertise as their top criteria for selecting a bank or wealth management institution, followed by brand and personal relations."
This year marks the fourth time Bain & Company and China Merchants Bank have collaborated to produce the China Wealth Management Report. The first report was published in 2009.
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Editor's Note: To request a copy of the report or schedule an interview with Mr. Shang and Ms. Zeng:
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