Wealth in China: Sizing the wealth market in China and its growth potential

At the end of 2015, of the approximately 1.05 billion adults living in China 3.5% could be considered affluent.

Asset growth is expected to be strongest in the $10m+ asset band, which will record a CAGR of 14.1% between 2015 and 2019, compared to a CAGR of 8.8% for mass affluent individuals.

Deposits continue to dominate China’s retail investments market, but mutual fund holdings are forecast to grow at the fastest pace over the next five years.

Chinese high net worth (HNW) investors allocate a noteworthy proportion of their investable assets into non-traditional investments, mostly in direct property. However, this is expected to change thanks to the recent drop in property prices.

Scope

Sizes the affluent market (both by the number of individuals and the value of their liquid assets) using Verdict Financial’s proprietary datasets.

Analyzes which asset classes are favored by Chinese investors and how their preferences impact the growth of the total savings and investments market.

Examines HNW clients’ attitudes towards non-liquid investments, such as property and commodities.

Identifies key drivers and booking centers for offshore investments.

Reasons to buy

Who is considered affluent in China?

How large is the Chinese wealth management market and what drives its performance?

What kind of investments do Chinese HNW individuals prefer?

What is the prognosis for wealth management in China?

Companies mentioned

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Table of Contents

Overview

Catalyst

Summary

Wealthy .% holds .% of liquid assets

Slower growth, but better times ahead

Not all of those classed as wealthy qualify as ...

Overview

Catalyst

Summary

Wealthy .% holds .% of liquid assets

Slower growth, but better times ahead

Not all of those classed as wealthy qualify as high net worth

Chinese HNW individuals held $,bn in liquid assets in

Retail Deposits dominate, mutual funds & bonds are growth drivers

Retail investment market to perform strongly despite weaker economic conditions

As in many emerging markets, deposits dominate China’s retail investment market

Deposits dominate, mutual fund holdings to grow fastest

Retail deposit growth set to pick up in , but less pronounced than the past

Deposit rates remain low and face stiff competition from money market funds

Despite strong growth rates, China’s retail bond market will remain insignificant

Subdued performance of the Shanghai Composite Index limits growth of direct equities

Money market funds' growing popularity shields funds from vagaries of stock market

Non-liquid & offshore investments preferred by Chinese investors

Chinese HNW individuals allocate % of their portfolios outside traditional liquid assets

Alternatives and commodities have become an integral part of the typical HNW portfolio in China

Despite maintaining a closed capital account, a significant amount is leaving the country every year

Better returns overseas and local economic instability prompt Chinese individuals to invest offshore

Tax is a comparatively limited driver for offshore investments

Income and capital gains taxes are the primary means of taxation

Real estate taxes are levied, but there are no wealth, gift, or inheritance taxes

US single most important booking center for Chinese wealth

China has signed nine TIEAs and numerous DTAs over the past few years

China also signed OECD’s Common Reporting Standards, taking a further step against tax evasion

Conclusions

Wealth growth is slowing but will still outstrip the West despite overseas capital drain, providing opportunities

Appendix

Definitions

Sources

Further Reading

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List of Tables

Table 1: Progressive tax rates levied in China, 2015

Table 1: Progressive tax rates levied in China, 2015

List of Figures

Figure 1: Affluent individuals represented 3.52% of the population in 2015

Figure 2: The affluent population holds 84.1% of retail liquid assets in China

Figure ...

Figure 1: Affluent individuals represented 3.52% of the population in 2015

Figure 2: The affluent population holds 84.1% of retail liquid assets in China

Figure 3: While lower than in the past, retail savings and investment growth is forecast to remain strong

Figure 4: Deposits account for 81.1% of the Chinese retail and investment market

Figure 5: Mutual funds and bonds are forecast to grow at impressive rates

Figure 6: Retail bond holdings negatively correlate to the Shanghai Composite Index

Figure 7: Stock market performance has been weak over the past year

Figure 8: Strong correlation between stock market performance and equity funds, and to a lesser extent mutual fund holdings

Figure 9: China’s total fund industry is dominated by money market funds

Figure 10: A significant proportion of HNW wealth is allocated to non-traditional investments

Figure 11: Chinese HNW individuals hold 27% of their assets offshore

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