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Chinese Asset Managers Embrace New Opportunities
China’s asset management industry is at a turning point as more households are expected to shift their money piled in the property sector and in banks as deposits to investment products such as mutual funds, providing lucrative opportunities for asset management firms and other financial institutions.
In this article, we will take a look at China’s asset management industry and the changes it is experiencing at present.
Rapid Rise of Investable Assets
Investable assets of Chinese households have risen by a compound annual growth rate (CAGR) of 14% over the past decade to reach RMB241 trillion in 20201, on the back of the country’s rapid economic as well as industry liberalization and transformation.
However, instead of buying investment products like people in most developed countries do, Chinese households tend to save their money as deposits or invest in the real estate market, leading to high savings and property ownership rates.
Statistics showed that as of 2019, 60% of households’ investable assets in mainland China were allocated in the property market and 24% as cash and deposits, compared to 24% of property and 15% of cash and deposits in the U.S.
While for equity investment, mainland Chinese households allocated only 8% of their investable assets, compared with 25% in the U.S. market.
Turning Point Looms
Property and infrastructure have been two key growth engines for China’s economic growth. The rapid rise of the country’s urbanisation rate from 39.8% to 60.6% in the past 15 years2, coupled with excessive liquidity have pushed up property prices sharply.
An index that tracks China’s nominal residential property prices surged 40% in the past decade. That explains why Chinese households are so obsessed with investment in this sector.
However, as the Chinese government is stepping up efforts to curb speculation in the property sector, the turning point for households’ asset allocation looms, with more assets expected to be shifted to investment products such as mutual funds, private funds and other wealth management products from the red-hot real estate market.
From the recent Evergrande’s incident, we can see the Chinese government’s policy direction that a “house is for living, not for speculating (房住不炒)”. We also believe the government is on its way to becoming less reliant on property investment so as to achieve more sustainable economic growth.
Asset Managers Embrace New Opportunities
Chinese banks have historically adopted a flow-driven approach that focuses on distributing wealth management products and collecting hefty subscription or sales fees. This model is being challenged by emerging online platforms and third-party wealth management institutions that offer huge discounts on fees, differentiated product mix and strong traffic, especially in mass market share.
In order to fully capture opportunities arising from the government’s recent regulatory reset, some market-oriented retail banks and leading brokers have started to transform from a product distribution model to one that focuses more on assets under management (AUM), especially in high net worth (HNW) market, where they can leverage deep product offerings from all channels to strengthen the value-added asset allocation service.
In addition, financial institutions are also embracing the trend of digitalization which is led by younger investors who are naturally attracted to more tailored content, tools and products with innovative features. Though online platforms and fintech companies are taking the lead on this front, some financial institutions are also investing heavily in technology solutions to optimize their mobile app experience while piloting an AI-empowered investment advisory service.
We believe this innovation-driven industry transformation will continue despite the tightening regulatory environment recently which aims to protect customers’ data privacy and safeguard the interests of retail customers.
October 26, 2021
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1 J.P. Morgan, June 2, 2021
2 Caixin, April 3, 2021
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