The recent spike in China’s high-net-worth population is changing the country’s economy and the way its consumers think about wealth.
According to a recent report by Bain and the China Merchants Bank, China’s population of high-net-worth individuals (HNWIs) exceeded 1 million last year. The Guandong province alone is now home to 100,000 HWNIs, and six other provinces have HNWI populations that surpass 50,000: Shanghai, Beijing, Jiangsu, Sichuan, Zhejiang, and Shandong.
Their collective wealth reached $2.1 trillion, a 16-percent year-on-year increase, and is expected to grow by another 16 percent this year. Nearly 80 percent of these individuals are under the age of 50.
The recent spike can be attributed in part to growing investment opportunities for younger wealthy Chinese, especially in “innovative industries” including manufacturing, biotechnology, information technology, and alternative energy. In turn, HNWIs are demonstrating greater willingness to invest their money and a higher interest in wealth management on the whole.
“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,” Alfred Shang, a partner with Bain and co-author of the report, noted in an interview with Luxury Daily.
Two- thirds of the survey respondents were chiefly concerned with wealth preservation; the second financial concern among all respondents to the Bain survey was inheritance. However, the newly wealthy showed a greater concern with wealth creation and a greater willingness to take financial risks. Newly wealthy HNWIs were also “more likely to invest in equity and alternative funds, two areas riskier than cash and fixed-income, than the whole sample on average.”
Chinese consumer’s perceptions of wealth are changing in other ways as well. Despite the focus on wealth preservation, “consumers are not averse to spending to achieve well-being.” Ninety percent of consumers on the mainland have plans to “maintain or grow their spending in 2015.” Furthermore, 64 percent of survey respondents cited spiritual wealth as most important to pass on to their children, and hold education, work ethic, and business philosophy in particularly high esteem.
China’s banks also taking steps to make investment opportunities more available to new HNWIS. Just six years ago, the country’s private banking sector was “in its infancy.” Today, the industry has matured, with banks focusing their attention on overseas expansion, service model innovation, and building stronger relationships with clients.
According to Jennifer Zeng, another co-author of the Bain report, client relationships are key to the continued growth and success of China’s banks.
“It’s no longer enough for banks to focus only on product offerings,” Zang said. “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.”
Many consumers also expect mobile applications to enable greater control over their investments. Forty-eight percent of survey respondents described in-depth policy analysis as “their favorite information to receive via mobile,” with domestic and overseas market and industry news coming in second. Consumers also expect value-added services via mobile technology, namely online subscription of wealth management products, asset portfolio evaluation, and wealth management product inquiry.
Despite recent concerns about a decline in Chinese spending, HNWIs continue to drive the Chinese market, as Shang observes.
“China’s high-net-worth individuals 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,” he said.
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