ASIA: Western wealth firms split on whether to operate in China or not

As published on: wealthprofessional.ca, Monday 12 June, 2023. 

Western financial services firms are split on whether to go all-in to grab a slice of the sizeable Chinese wealth market, or if they should pull back.

Last December Citigroup announced it was winding down its consumer banking business in mainland China, part of its broader global strategy refresh to exit consumer franchises in 14 markets in Asia, Europe, Middle East and Africa and Mexico – although it has maintained its institutional business.

In April this year, Vanguard was widely reported to be planning to exit its joint venture with Ant Financial and Ontario Teachers' Pension Plan (OTPP), shut down its Hong Kong-based China equities investing team.

However, last week, global asset firm Schroders said it has been granted a licence to begin operation as a wholly foreign-owned public fund management company in mainland China.

"This is a significant moment and of strategic importance to Schroders,” said Peter Harrison, Schroders’ group CEO. “It further strengthens our investment and service capabilities in China, allowing us to take advantage of the market growth in China and positioning us well to deliver strong returns in the medium to long-term.”

The firm will offer innovative onshore investment products and solutions to retail clients, alongside asset management services to institutional clients, to help them achieve their long-term financial goals.

It established its first representative office in Shanghai in 1994.

While individual firms will have their own reasons to up- or down- size their China operations, a recent survey by Bain & Company and the Hang Seng Bank shows the strong demand that many wealthy Chinese people have for foreign investment and financial services products.

The poll of more than 2,500 people in China’s Greater Bay Area (GBA) - a capital rich region -   found that those that own wealth management, insurance and loans in Hong Kong have grown by 2 percentage points (pp), 6pp and 4pp, respectively, between 2020 and 2022.

Meanwhile, those in Hong Kong saw a growth in ownership of wealth management (+4pp), insurance (+1pp) and loans (+4pp) products in mainland China.

Customers who were interested in cross-border wealth management felt that foreign products were more attractive than domestic options with 60% of mainland customers and 54% of Hong Kong customers believing cross-boundary wealth management products have better features. 

Specifically, mainland customers said that Hong Kong providers offer more product options (e.g., global equities, foreign stocks, and bonds) and also use Hong Kong insurance policies for offshore asset allocation.