China continues to mint new high-net-worth individuals, and private banks global and domestic are eager to serve.
China was the hottest thing in private banking for most of the 2010s. Its mushrooming roster of high net-worth individuals surpassed Japan last year to take the number-two spot globally at 2.3 million, according to researcher Wealth-X.
Now, as the global rich and their bankers look past the Covid-19 pandemic, China … still looks like the hottest thing in private banking. Not only is the Chinese economy leading the global recovery, but Beijing, which historically has constrained financial markets, is embracing them as a way to keep GDP rolling. This policy is feeding a healthy pipeline of newly minted millionaires, notes Allen Cheng, cofounder and CEO of Advise Insight, a China-focused due diligence firm.
More than 100 Chinese companies went public in the first half of 2020, despite the upheaval, creating $10 billion in new personal wealth, Cheng estimates. That follows a record-breaking 2019, when 404 initial public offerings raised $78 billion, according to global consultant PricewaterhouseCoopers. “China is turning to capital markets to make up for a loss of growth in other areas,” Cheng says. “They are actively encouraging entrepreneurship.”
Beijing’s capital controls, strict on their face, include fairly wide loopholes. For example: a Chinese citizen can buy a million-dollar-plus insurance policy, then borrow against it in foreign jurisdictions to effectively send wealth outside the country.
What has changed? Rich Chinese people’s enthusiasm for investing in the US is cooling: not surprising, given the tough-on-China stance among many factions in Washington. America’s loss looks like Europe’s gain as an alternative safe haven—and an opportunity for Swiss and Continental banks to steal a march on their US-based rivals in the China market.
“The ongoing trade war has discouraged many HNWIs from China investing in the US,” says Peter Lu, a partner at Baker & McKenzie, in a report by consultant Hawksford. “This capital is being rerouted.” Southern European countries such as Greece, Portugal and Spain, meanwhile, are subtly promoting themselves as second-passport destinations for Chinese money, Cheng adds, making European banks the natural conduits.
Singapore and its brace of growing private banks look like another beneficiary of recent political shifts. “Being a common-law country, Singapore is often the top choice for Chinese HNWIs to set up family trusts for succession and legacy planning,” says Alice Quek, Hawksford’s director of private client services in Asia.
Both Singapore and Western Europe, with their robust state medical services and environmental commitments, appeal to the growing concern of wealthy Chinese for healthy living, a focus the pandemic has only sharpened. “Health is the real wealth for Chinese HNWIs,” reports Hawksford’s Quek. “Quality of water, air, energy and mental wellness matter to them.”
Battling back, US banks are taking an opposite approach, in part by moving onshore in China. Wall Street giants JPMorgan Chase and Morgan Stanley have both jumped on easing restrictions to take majority control of Chinese wealth-management joint ventures. JPMorgan disclosed a $1 billion investment in August for its new subsidiary, China International Fund Management.
They’ll be facing established players like China Merchants Bank as well as competition from the likes of Chinese insurance giant Ping An, which is widening its wealth-management footprint, and mass-affluent American powerhouses like BlackRock and Vanguard. “Vanguard is expanding in Shanghai and Shenzhen,” Cheng notes. “That tells you something.”
One thing no one is expecting is for the stream of Chinese private wealth to dry up post-Covid. Reuters reported in June that European heavy-hitters UBS, Credit Suisse and Julius Baer were each looking to expand their Greater China staffs by a third, setting up a new round of talent wars.