With 415,000 dollar millionaires as at the end of 2007, China is Asia's second largest wealth management market. The poor performance of the Chinese stock market last year -- it lost two-thirds of its value -- will have wiped out much of this wealth, but according to a recent report by research and consultancy firm Celent, the prospects for the wealth management industry in China are healthy.
By 2014 the size of the market for individual wealth management products is expected to be $700 billion, double what it was in 2007. The report goes on to give a demographic account of China's rich and their investment habits.
One thing that makes the rich in China stand out is their youth: 87% are less than 55 years old. Compare this to other Asian countries, such as Japan and Korea, where wealthy people over the age of 55 account for 73% and 61% of the market respectively. The young rich should be more attractive to a wealth management company because they have the potential to be customers for many years.
"Generally speaking, younger wealthy people do not avoid risks," said the report. "They usually seek precisely planned investments with broader geographic diversity and expect a higher return within a relatively short timeframe." More senior customers are looking for security in their investments, as well as advice on how best to pass their wealth down to future generations.
With regard to the sources of wealth, most of China's rich are entrepreneurs (62%), many inherit the money (26%), while the remaining 12% became well-to-do due to employee stock options. The downside of such a high proportion of self-made millionaires, according to the report, is that "wealthy people of the first generation do not pay much attention to wealth management, because nobody is going to tell them how, and they usually need to learn on their own".
But when entrepreneurs do get involved in wealth management products, they have a greater risk appetite, partly because they are confident that even if they lose money, they can recoup the losses by using the skills that created their initial fortune, the report continued.
While equity and real estate have been the primary means of investment in recent years, this is set to change as the rich channel more of their money into fixed-income products that offer more stable returns, the report said.
The wealth management services offered by banks have grown due to the financial crisis. In June 2008, 53 banks operating in China sold $138.8 billion worth of products, equivalent to all the sales in 2007. One reason for this is that the products offered by the banks are increasingly perceived as a safe haven for capital. At the same time, the banks have rapidly increased the number of products available.
The report also mentions two main trends in product design by wealth management institutions. Customers are more interested in products that can be personalised according to individual needs and packaged products are becoming popular -- one example is a wine investment product that comes not only with a guaranteed return, but also with membership to a high-class wine club.
