20
THE EVOLUTION OF CHINA’S PRIVATE WEALTH MARKET
THE EVOLUTION OF CHINA’S
PRIVATE WEALTH MARKET
Copyright © 2015 Bain & Company, Inc. All rights reserved.
Jennifer Zeng, Alfred Shang and Sameer Chishty are partners with Bain & Company.
The evolution of China’s private wealth market | Bain & Company, Inc.
Page i
Contents
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .pg. ii
1. China’s private wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 1
2. Investment mindset and behaviors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 5
3. Private banking: Competitive landscape . . . . . . . . . . . . . . . . . . . . . . . . . pg. 11
The evolution of China’s private wealth market | Bain & Company, Inc.
Page ii
Executive summary
China is now home to one million high-net-worth individuals (HNWIs)—twice as many as in 2010. This is a
key fi nding of the 2015 China Private Wealth Report, jointly published by Bain & Company and China Merchants
Bank (CMB). We surveyed approximately 2,800 Chinese HNWIs (those with individual investable assets in excess of
RMB 10 million, or approximately US $1.6 million). We conducted our fi rst survey in 2009 and have conducted
three follow-ups since then. Our latest survey found that the country’s total private wealth market grew by 16%
annually between 2012 and 2014, reaching RMB 112 trillion in 2014. This market should reach RMB 129 trillion
in 2015.
The HNWI population is expanding throughout China. While only the seven provinces of Guangdong, Shanghai,
Beijing, Jiangsu, Zhejiang, Shandong and Sichuan claim more than 50,000 HNWIs, the numbers are increasing
rapidly in provinces like Xinjiang, Hubei and Shaanxi, where the number of HNWIs rose by 25% to 35% annually
between 2012 and 2014, contributing to a more balanced geographic distribution of wealth.
In addition to determining the size and growth trajectory for China’s HNWI population and private wealth market,
the survey produced insights into how these individuals gained wealth, where they live, how their priorities are
changing and how they invest today. For example, the growth of innovative industries such as IT, biotechnology
and alternative energy led to the creation of a newly rich, a segment of HNWIs who are younger and adopt a more
aggressive and open investment style than their more established counterparts among the wealthy. Fully 80%
of the newly rich are under 50 years of age and add diversity to the HNWI population, which now includes both
entrepreneurs who opened factories decades ago and younger professionals in the technology sector and other
emerging industries.
Unlike more established wealthy individuals, the newly rich prioritize wealth creation over wealth inheritance.
Their presence and success is changing how wealthy Chinese invest outside of the capital markets. According to
Bain’s research, China’s HNWIs are adjusting their investment strategies based on domestic reforms. More than
one-third 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% of HNWIs expect to increase their investment
in more traditional manufacturing industries.
Wealth preservation remains the top wealth management objective, followed by wealth inheritance planning,
which surged from the fi fth priority in 2013 to the second in our 2015 survey. It shares its ranking among ultra-
HNWIs (those with investable assets in excess of RMB 100 million).
HNWIs’ interest in overseas investment continues to increase. Nearly 40% of HNWIs and almost 60% of ultra-
HNWIs indicated that they have overseas investments—a sizable jump from 20% and more than 30%, respectively,
in 2011. About half of the HNWIs said they plan to boost their overseas investments in the next year or two, attracted
by the more diverse cross-border investment opportunities.
HNWIs are entrusting a larger 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% of their investable assets in the hands of
private banks or other high-end wealth management institutions, a signifi cant increase from 25%, on average,
in 2009.
The evolution of China’s private wealth market | Bain & Company, Inc.
Page iii
As China’s private wealth market grows and changes, all wealth management institutions are discovering the
importance of adapting to their customers’ shifting needs and preferences. This includes continually improving
customer relationships and actively exploring innovative service models. Chinese private banks remain the fi rst
choice for HNWI onshore wealth management requirements. Now, many are investing heavily to expand their
overseas service platforms and capabilities in order to capture the growing market for overseas investments.
• China’s private wealth market surpassed the RMB 100 trillion mark in 2014, reaching RMB 112 trillion. The market grew at an annual rate of 16% from 2012 to 2014, at par with 2010–2012, and we expect it to continue to grow approximately 16%, reaching an estimated RMB 129 trillion in 2015.
• China’s high-net-worth individuals (HNWI) population exceeded one million in 2014. The population of HNWIs increased at a healthy pace between 2012 and 2014, with a compounded annual rate of 21%. Investable assets owned by Chinese HNWIs reached RMB 32 trillion by the end of 2014.
• There are seven provinces in China with more than 50,000 HNWIs: Guangdong, Shanghai, Beijing, Jiangsu, Zhejiang, Shandong and Sichuan.
• Guangdong is the fi rst province to have more than 100,000 HNWIs, and Sichuan is the fi rst inland province to have more than 50,000 HNWIs. Provinces in Central and Western China had the greatest increase in the HNWI population in 2012 to 2014, contributing to a more balanced geographic distribution of wealth.
• We expect continued signifi cant growth potential for wealth in Central and Western China given the “One Belt, One Road” initiative and the Yangtze River economic belt policies.
1.China’s private wealth market
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 2
Figure 1: The wealth market achieved steady growth; total investable assets exceeded RMB 100T, reaching RMB 112T in 2014
Figure 2: China’s HNWI population exceeded one million in 2014
Note: Historic data of bank wealth management (WM) products and other domestic investment is adjusted based on latest official dataSources: National Bureau of Statistics of China; The People's Bank of China; Shanghai Stock Exchange; Shenzhen Stock Exchange; CBRC Shanghai Office; Bain analysis
Individual investable assets (T RMB)
150
100
50
0
CAGR(2008–10)
CAGR(2010–12)
CAGR(2012–14)
CAGR(2014–15E)
39
2008 2010 2012 2014 2015E
63
83
112
129
Other domestic investment
(Life) insurance
Bank WMproducts
Market value ofcapital market
products
Net value ofinvestmentproperty
Cash anddeposits
Overseas investment28%
97%19%93%
13%
55%
40%
17%
45%17%23%
42%
-2%
18%
14%
53%18%20%
40%
27%
8%
11%
26%18%20%
23%
30%
8%
11%
15% 16% 16%
Sources: National Bureau of Statistics of China; The People's Bank of China; Shanghai Stock Exchange; Shenzhen Stock Exchange; CBRC Shanghai Office; UK HMRC; US IRS; Japan NTA; Korea NTS; Federal Reserve; Bank of Korea; Bank of Japan; World Bank; Bain analysis
Number of individuals with investable assets greater than 10M RMB (K)CAGR
(2008–10)CAGR
(2010–12)CAGR
(2012–14)CAGR
(2014–15E)1,500
9302
2008
9
2,905 2,982 3,105 3,056 2,932
15 22 32 37
29%
56%18%
29%
33%11%
19%
29%11%
22%
27%7%
23%
18% 21% 22%
2010 2012 2014 2015E
258
34
48
59
7367
8578
432607
8971,099503
706
23
40
1,037
1,262
1,000
500
0
Investable assets of HNWIs (T RMB):Avg. investable assetsper HNWI (10K RMB):
>100M RMB 50M–100M RMB 10M–50M RMB
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 3
Figure 3: Seven provinces have more than 50,000 HNWIs; the regional wealth gaps are shrinking
Figure 4: Provinces with biggest increase in the HNWI population from 2012 to 2014 are clustered in Central and Western China
Sources: National Bureau of Statistics of China; The People's Bank of China; Shanghai Stock Exchange; Shenzhen Stock Exchange; CBRC Shanghai Office; UK HMRC; US IRS; Japan NTA; Korea NTS; Federal Reserve; Bank of Korea; Bank of Japan; World Bank; Bain analysis
Number of HNWIs with>10M RMB investable assets
>100K
Some islandsin SouthChina Seaand EastChina Seanot included
50K–100K
10K–30K30K–50K
<10K
Inner Mongolia
Yunnan
Sichuan
Shaanxi
Guangxi
Hubei
Guangdong
Fujian
Jiangxi
Beijing
Shanxi HebeiTianjin
Liaoning
Jilin
Heilongjiang
Shandong
Jiangsu
AnhuiHenan
Shanghai
Zhejiang
Hunan
Chongqing
Sources: National Bureau of Statistics of China; The People's Bank of China; Shanghai Stock Exchange; Shenzhen Stock Exchange; CBRC Shanghai Office; UK HMRC; US IRS; Japan NTA; Korea NTS; Federal Reserve; Bank of Korea; Bank of Japan; World Bank; Bain analysis
Link to Europe (Baltic Sea) through Central Asia and RussiaLink to Persian Gulf and Mediterranean Sea through Central and West Asia
To Southeast Asia, South Asia, Indian Ocean
HNWI population growth(2012–14) by province
25%–35%
20%–24%
15%–19%
<15%
Xinjiang
Yunnan
SichuanShaanxi
Guangxi
Hubei
Guangdong
FujianJiangxi
Beijing
Shanxi HebeiTianjin
Shandong
JiangsuAnhui
HenanShanghai
Zhejiang
Hunan
Chongqing
Silk Road Economic Belt
Silk R
oad
Econ
omic
BeltYangtze River Economic Belt
Some islandsin SouthChina Seaand EastChina Seanot included
• HNWIs’ investment approach continues to evolve, and investors are becoming more optimistic about investments in innovative industries.
• As China’s macroeconomic growth enters a “new normal,” the country’s HNWIs are paying increasing attention to government policies regarding domestic reforms, market openings and innovation.
• Chinese HNWIs have varying opinions regarding the industries in which they choose to invest. Many feel optimistic about investment in innovative industries but cautious about investment in traditional manufacturing industries.
• Wealth preservation remains the top wealth manage-ment objective, followed by wealth inheritance, which surged from the fi fth priority in 2013 to the second priority in our 2015 survey—sharing its present ranking among ultra-HNWIs, too.
• Besides fi nancial wealth, HNWIs want to pass on such family values as receiving a good education and working hard.
• In addition to spreading risk and diversifying assets, HNWIs are starting to actively seek returns on overseas investments, with Hong Kong and the US topping the list.
• HNWIs still prefer personalized and private relation-ship management and advisor services in offl ine channels; however, they are increasingly using online channels (especially mobile Internet) for invest-ment information and banking services.
• The development of innovative industries such as IT, biotechnology and alternative energy has led to the emergence of the newly rich HNWI seg-ment, a group with a more aggressive and open investment style.
2.Investment mindset and behaviors
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 6
Figure 5: HNWIs have varying opinions about industry investments, but they’re more optimistic about investing in innovative industries
Figure 6: Wealth preservation is still HNWIs’ top wealth management objective while wealth inheritance rose to second place
*Consumer service includes industries such as entertainment, medical, etc. **Innovation includes industries such as IT/Internet, biopharmacy, alternative energy, etc.Sources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB regional account manager (RM) interviews; CMB partner regional account manager interviews; interviews with high-end wealth management relationship managers of other financial institutions; Bain analysis
Q: Will you increase/maintain/decrease your investment in the following areas in the next one to two years?
Q: Will you increase/maintain/decrease your investment in different sectors of industrial investment in the next one to two years?
Increase Maintained Decrease
% of HNWIs
Financial investment Industrial investment
100%
80
60
40
20
0Traditional
manufacturingConsumerservice*
Innovation** Other
100%
80
60
40
20
0
% of HNWIs
Note: RM refers to regional account managerSources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end wealth management relationship managers from other financial institutions; Bain analysis
Q: What are your main wealth management objectives?
HNWIs’ top wealth management objective is the same as two years ago: “wealth preservation: realize stable wealth growth”
Along with wealth accumulation and the growing needs of a family wealth plan, HNWIs have started considering an effective way of passing wealth to their heirs
For ultra-HNWIs, the importance of wealth inheritance is even more obvious
Importance of wealth inheritance has increased
% of mentioned objectives
2011(All)
2013(All)
2015(All)
2015(Ultra-HNWIs)
Charity100%
80
60
40
20
0
Wealth preservation remains the top priority;inheritance gains significance
Quality of life
Wealthcreation
Children’seducation
Wealthinheritance
Wealthpreservation
Career/businessdevelopment
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 7
Figure 7: HNWIs want to leave a legacy of both fi nancial wealth and family values
Sources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
Q: Have you started to consider wealth inheritance? Q: Which of the following do you think is the most important component to family wealth?
% of respondents
65%
0 20 40 60 80%
58%
34%
Spiritual wealth
Material wealth
Social resources
Human resources 12%
Ultra-HNWIs All HNWIs
% of HNWIs already considering wealth inheritance
60%
34%
46%
2013
46%
51%
All HNWIs Ultra-HNWIs
50
40
30
20
10
0
2015 2013
2013
2015
Figure 8: An increasing number of HNWIs have made overseas investments, and that momentum will continue
Sources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
Q: Do you have any overseas assets? Q: Do you plan to increase overseas investment?
60%
19%
33% 33%
51%
57% 100%
80
60
40
20
0
40
20
0
HNWIs holding overseas investments Reference rate by HNWIs
HNWIs Ultra-HNWIs HNWIs Ultra-HNWIs
The ratio of investors making overseas investments rises … … And overseas investment may continue to increase
37%
2011
20132015
2011
20132015
Increase
Unchanged
Decrease
Increase
Unchanged
Decrease
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 8
Figure 9: In addition to diversifying assets, HNWIs have started to actively seek returns on overseas investments
Note: Bar lengths may not have consistent spacing due to rounding.Sources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
Q: What are your main purposes of making overseas investments?
Q: For overseas investable assets, what is your ratio of allocation in the following types of assets?
Q: Which locations do you prefer for overseas investments?
28%27%
26%29%
71%
54%
17%
15%
15%
8%
2%
24%
8%8%
7%8%
10%5%
22%
0 10 20 30% 0 20 40 60 80%
Fixed-incomeproducts
Hong Kong
US
Australia
Canada
Singapore
Luxembourg
UK
Stock
Investmentproperties
Structuredproducts
Hedge fund
Other
Ultra-HNWIs HNWIs Early 2013 Early 2015
61%
39%
37%
14%
2%
0 20 40 60%
Leverage assetallocation todiversify risk
Capture overseasopportunities for
investment returns
Immigration andoverseas asset
transfer
Segregate assetsfor overseas
business expansion
Overseas equitystructure
arrangement
Other
6%
% of respondents % of respondents % of respondents
Figure 10: HNWIs are open to online channels like mobile private banking services
Note: RM refers to regional account managerSources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
Q: What information do you want most if you receive mobile (e.g., mobile phone, tablet, app) banking service?
Q: In addition to information, what kind of value-added services do you like to receive from mobile banking service?
Ultra-HNWIs All HNWIs
0 20 40 60%
48%55%
48%
40%
22%
17%
17%
10%
1%
46%
38%
37%
9%
0 20 40 60%
In-depthpolicy analysis
Asset portfolioevaluation
WM product inquiry
Online subscription toWM products
Online consultationwith RM
Making appointmentwith RM
Interaction withinvestor community
Other
Daily expense mgmt.
Domestic andoverseas market
and industry news
Reminder ofinvestment
portfolio changes
Product expirationand new
product launch
Practical wealthmanagement skills
% of respondents % of respondents
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 9
Figure 11 : Compared with other HNWIs, the newly rich have a more aggressive and open investment style
% of mentions Allocation of investable assets (%) % of respondentsOther OtherCharity Charity
Notes: Cash includes cash deposit and monetary fund; fixed-income includes bonds, bank wealth management products and trust products; equity includes equity funds and stocks; alternative investment includes guarantee-type insurance, other domestic investment and investment propertySources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
100%
80
60
40
20
0
100%
80
60
40
20
0
100%
80
60
40
20
0
Q: What are your major wealth management objectives at present?
Q: How do you allocate your investable assets in China among different asset classes?
Q: Do you like to receive mobile services provided by private banks?
Career/businessdevelopment
Career/businessdevelopment
Wealthcreation
Wealthcreation
Alternativeinvestment
Equity
Yes
Fixed-income
Cash
No
Don’t care
Quality of life
Quality of lifeChildren’seducation
Children’seducation
Inheritance
Inheritance
Wealthpreservation
Wealthpreservation
2015(All respondents)
2015(All respondents)
2015(All respondents)
2015(Newly rich)
2015(Newly rich)
2015(Newly rich)
• Chinese private banks continue to be the most preferred wealth management option. They are actively investing to build cross-border capabilities.
• Banks and other wealth management institutions in China earn customers based on their brand, expertise and service. The scope of product offerings and expected returns are secondary criteria.
• Other wealth management providers, including fund management companies and third-party wealth management and trust companies, mainly compete on product offerings and distribution.
• Brand, expertise and product offerings are the most important criteria for Chinese HNWIs when choosing their overseas wealth management institution; ultra-HNWIs value expertise the most.
• Convenience, Chinese language service capability and cultural connections are important, especially for HNWIs who use overseas investments to achieve risk diversifi cation and stable returns.
3.Private banking: Competitivelandscape
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 12
Figure 12: Domestic asset management market: Providers compete on brand, expertise and service
Note: RM refers to regional account managerSources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
Q: What are your major criteria for selecting private banks/high-end personal WM institutions?
Ultra-HNWIs All HNWIs
Professional team, brand and RM service are key selection criteria; investment products and expected returns come next
Financial institutions keep improving relationships with customers, exploring innovative service models such as fee-based asset management services
Expertise
Brand & trust
RM service & personal relations
Primary bank
Expected return
Service privacy
Online transaction
Value-added service
Extensive outlets
% of respondents
Investment scope & offerings
54%
49%
41%
28%
23%
17%
15%
11%
7%
2%
0 20 40 60%
Figure 13: Overseas asset management market: Chinese banks are gaining share; brand, expertise and products are the most important criteria
Other Chinese FIs
Notes: FI is financial institution; VAS is value-added service; UHNWI is ultra-high-net-worth individualsSources: CMB customer questionnaire survey; CMB/non-CMB customer in-depth interviews; CMB RM interviews; CMB partner RM interviews; interviews with high-end WM RM of other financial institutions; Bain analysis
Q: What kind of institutions do you prefer for overseas investment?
Q: What are your major considerations when selecting WM institutions for your overseas investment?
Trustworthy brand
Expertise
Primary bank
Diversified VAS
Internal discipline
No language orculture barrier
Friend's orrelative's referral
Joint service ofdomestic and overseas RM
Ultra-HNWIs All HNWIs
% of respondents
% of respondents
100%
0 20 40 60%
56%
52%
32%
24%
21%
15%
14%
13%
12%
8%
3%
80
60
40
20
0
Overseasaffiliates
ofChinesebanks
Other
2013(All)
2015(All)
2013(UHNWI)
2015(UHNWI)
Otherforeign
Fls
Foreignbanks
Fit-for-purposeproducts/returns/investment
Overseas propertyinfo. segregation
Easy account opening and online transactions
Contacts in Bain’s Financial Services practice in Asia-Pacifi c:
Asia-Pacifi c: Jennifer Zeng in Beijing ([email protected]) Alfred Shang in Beijing ([email protected]) Sameer Chishty in Hong Kong ([email protected])
For a copy of the full Evolution of China’s Private Wealth Market report, please contact the authors.
China wealth market sizing model methodology
Source: Bain & Company
Estimated Chinainvestableassets size
Main steps
Outcome
Calculated Chinaincome/wealth
distribution curve
Derived relationshipbetween income andwealth distributionof Chinese HNWIs
Calculated ChineseHNWIs’ wealth size
and distribution
Calculated total value of individual’s financial assets based on market value Estimated value of investable real estate owned by individuals Specified and explored details of other domestic investment and overseas assets; made estimation based on public data and primary survey
Total individual investable assets of the country and of each province and municipalityHistorical data and forecast, 2006–2015
Collected data of top 1% wealthiest citizens' income and wealth as a percent of national total wealth of EU, US and ~10 Asian developed and developing countriesDerived the functional relationship between income proportion and wealth proportion based on Gini coefficient and GDP
Top 1% wealthiest Chinese people’s wealth as a percent of national total wealth
Calculated wealth distribution among top 1% wealthiest people in EU, US and Asian countries with available dataCombined with CMB private customers’ assets under management distribution data to derive wealth distribution curve among top 1% wealthiest Chinese citizens
Lorenz curve of top 1% wealthiest Chinese citizensPopulation and total wealth of individuals with any given asset size
Calculated China income/wealth distribution curve based on provincial/ municipal/regional population and household number by income
Lorenz curve of Chinese income distributionTop 1% wealthiest Chinese people’s income as a percent of national total individual income
1 2 3 4
The evolution of China’s private wealth market | Bain & Company, Inc.
Page 13
For more information, visit www.bain.com
Shared Ambit ion, True Re sults
Bain & Company is the management consulting fi rm that the world’s business leaders come to when they want results.
Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisitions. We develop
practical, customized insights that clients act on and transfer skills that make change stick. Founded in 1973, Bain has
51 offi ces in 33 countries, and our deep expertise and client roster cross every industry and economic sector. Our clients
have outperformed the stock market 4 to 1.
What sets us apart
We believe a consulting fi rm should be more than an adviser. So we put ourselves in our clients’ shoes, selling outcomes, not
projects. We align our incentives with our clients’ by linking our fees to their results and collaborate to unlock the full potential
of their business. Our Results Delivery® process builds our clients’ capabilities, and our True North values mean we do the
right thing for our clients, people and communities—always.
Bain in Greater China
Bain was the fi rst strategic consulting fi rm to set up an offi ce in Beijing in 1993. Since then Bain has worked with both multi-
nationals and local clients across more than 30 industries. We have served our clients in more than 40 cities in China and now
have three offi ces in the Greater China region, covering Beijing, Shanghai and Hong Kong. We currently have about 200 consultants
with extensive work experience in China and throughout the world working in our offi ces.
