Chinese president Xi Jinping’s crackdown on corruption and excess is clearly worrying the country’s wealthy, especially if the latest Wealth-X and UBS report is anything to go by.
China ranks a lowly 14th among Asian nations in terms of the growth in number this year of so-called ultra high-net-worth individuals (UHNWIs) – people with $30 million or more in net assets. It is also an unimpressive 15th for wealth growth.
“Although Chinese UHNWIs are still seizing opportunities through their large domestic market, many are choosing to relocate outside of China, or at least diversify their business interests internationally,” according to the report, which was published on Wednesday.
China’s UHNWI population, the world’s youngest on average at 53, grew 3.7% to 11,070 in 2014, while their wealth grew 3.3% to $1.565 trillion. This doesn’t sound too bad but Asia’s overall respective growth numbers of 4.8% and 5.8% tell a different story.
Wealth flowing out of China is nothing new. According to US-based Global Financial Integrity Group, $1.08 trillion was taken illegally out of China from 2002 to 2011.
Of course, there is no suggestion UHNWIs take part in such chicanery, nor the "demi-UHNWIs" who make up the next tier down, but Xi’s crackdown has stirred up a hornet’s nest.
Tens of thousands of people – including politicians and businessmen – have so far been investigated. Many have fled and the ramifications have hit business, with sales of luxury goods in particular hit.
Add this purge to slowing economic growth at home and it is not difficult to see why some Chinese UHNWIs might want to look elsewhere. After all, what and who might Xi turn his attention to next?
Looking to leave
According to a report by Barclays in September, almost half of China’s rich want to emigrate within five years. The desire for a better economic situation was cited as a main reason by 73% of respondents.
The theme of leaving home base is one that has hit Asia generally this year, according to the report.
Asia’s UHNWI population growth for 2014 is 4.8% compared with 6.2% in the US, 6.5% in Europe, 12.7% in the Middle East, 5.4% for Australia/New Zealand and 8.3% in Africa.
“There’s a trend of diversifying outside of home markets to developed markets such as the US,” Amy Lo, UBS country head for Hong Kong, said at the Wealth-X and UBS report’s launch.
No such problems for Hong Kong though, despite the debate sparked by pro-democracy protesters on the importance of the city to China, and vice versa.
According to the report, Hong Kong saw about four-times the growth of mainland China in terms of wealth generation in 2014 and the city's figure was four times more than it posted last year.
The combined net worth of Hong Kong’s UHNWIs rose 12.3% to $595 billion this year, while the average net worth rose 7% to $178 million – almost $40 million more than the global average. The number of HNWIs rose 4.9%.
“Hong Kong is a very important hub. It is the gateway to China and investors are using the city to increase their exposure to the mainland market,” Lo said.
Hong Kong is the third densest location for UHNWIs globally, behind Luxembourg and Switzerland, according to Mykolas Rambus, chief executive of Wealth-X (pictured below with Lo).
As such, Lo said UBS had hired close to 100 frontline bankers in Hong Kong this year and will continue to invest in the city.
Interestingly, the gender gap appears less of a problem in Greater China, with the proportion of female UHNWIs in Hong Kong at 26%, double the global average of 13%. Meanwhile, China’s female UHNWI population is larger than South Korea’s entire UHNWI population.
“Patriarchs and matriarchs providing funds for children, including daughters. That’s a part of it but we also see the self-made numbers growing and we simply see more women building and growing businesses,” Rambus said.
And overall the trend remains upwards. The report estimates that in 2019 there will be 24% more UHNWIs globally and 29% more UHNWI wealth than now.
Indeed, Asia is expected to surpass Europe by 2027, the report estimates.
“We are at the beginning of a 150-year wealth creation cycle, and that is centred in Asia,” said Rambus.
That’s what I keep telling my bank manager.