Asia is known to be the main growth driver for Swiss banks in wealth management. But with regard to Chinese clients, the vast majority are offshore wealth management. Either the management of wealthy Chinese assets abroad, whether this is carried out from hubs near Hong Kong and Singapore, or from other international jurisdictions.
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A simple reason for this: Mainland China is particularly strict and restrictive in financial matters. However, a real revolution is at work, with unprecedented market liberalization for the country.
The door open to foreign investors
China is implementing many measures to develop foreign investment in mainland China, allow Chinese to invest abroad and facilitate the activities of foreign establishments on Chinese soil. Beijing announced at the end of the year that foreign investors will be able to hold a majority stake in financial companies, ending the 49% limit. By 2020, they will even be able to own 100%. The 25% cap, set for foreign holdings in Chinese banks, will also be removed.
On the investment side, the Stock Connect program, started last year, has made it possible to link the Shanghai and Shenzhen stock exchanges and to open approximately 70% of the Chinese market for A-shares (domestic companies listed on the two aforementioned places) to foreign investors, and around 85% of H-shares (domestic and listed on Hong Kong). A real success because, in September 2017, the assets of foreign investors holding A-shares had increased by more than 50% in one year.
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Its bond counterpart, the Bond Connect program, is also aimed at greater openness to foreign investors. “The Chinese bond market has become the third largest in the world, with $ 9 trillion. I think it will double in the next five years to become the second, just after the United States, ”anticipated Sergio Ermotti, CEO of UBS, during the Greater China Conference, organized by the bank in early January.
Among the 300 conferences set up by the establishment each year around the world, the most imposing is indeed held in Shanghai, which gives an idea of the importance it attaches to this market. The Greater China Conference registered more than 2,000 attendees, up 20% year on year. A Swiss delegation of journalists, including With was part of, was invited for the first time to this meeting organized since 2001, mainly intended for customers and partners.
UBS is one of the forerunners, with an established presence in mainland China since 1989. The bank’s objective is to capture a good part of the growth in the country’s wealth. UBS is also significantly strengthening its workforce in the region: the milestone of 1,000 employees has just been exceeded, while this target was set for 2020. For 2018, nearly 200 commitments are planned in China, according to Kathryn Shih , president of the APAC zone for UBS.
Wealth and competition are on the rise
In the first days of January, Yang Huiyan, the head of the real estate company Country Garden, saw the valuation of his company gain more than two billion in four days. At 36, she thus became the fifth fortune and the youngest billionaire in China, with more than 25 billion dollars. The anecdote is symptomatic of the phenomenal wealth creation in China, not to mention a wealthy middle class that is forming at a rapid pace. UBS expects the fortune of Chinese billionaires to exceed that of the United States in the coming decade.
All is not rosy, however. In an article last December devoted to wealth management, the Financial Times headline: “The decline of the Swiss private bank.” The newspaper began by recalling that UBS is indeed the leader in private banking in Asia in terms of amounts under management, followed by Credit Suisse (3e), and Julius Baer (5e). But Swissness would lose its luster, to the benefit of local Asian banks, culturally closer to the new generation of millionaires.
According to the latest annual figures available (for 2016) compiled by Asian Banker, Bank of Singapore increased its amounts under management by 44% in one year, UOB Private Bank by 23%, and DBS by more than 8%. Those of UBS would have increased by just over 4%, although it can be argued that the basis of comparison is significantly higher. There is also competition with American managers, in particular Citi, the second largest private banking figure in Asia, which intends to hire nearly 100 people in mainland China in 2018.
Still in the minority
If Swiss banks have been able to position themselves in Asia, they are still tiny in mainland China. But they are not the only ones. A recent study by KPMG reveals the gulf that separates local and foreign banks in mainland China.
According to the Mainland China Banking Survey 2017, the total amount of assets of foreign banks in mainland China increased from 92.8 billion to 2.680 billion RMB between 2006 and 2015, with annual growth averaging 20%. But their market share is not expanding: the share of assets held by foreign banks compared to all assets in the Chinese banking sector has even fallen, from 2.38% in 2007 to 1.38. % in 2015.
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