As foreign firms expand with majority stakes, formerly dominant Chinese domestic banks look for ways to maintain their edge.
Plush chairs and pu’er tea are never lacking in the VIP rooms at China’s private banks. Neither is competition lacking among the nation’s many private banking financiers—from the state-run Industrial and Commercial Bank of China (ICBC) to the publicly traded China Merchants Bank—vying for deposits from a treasure chest of some $1.4 trillion held by China’s wealthiest.
Now, financial powerhouses from abroad are ramping up the competition after securing, over the past two years, long-sought government approvals to take control of Chinese joint ventures. Most recently, a late-January trade deal sped up the timetable for allowing foreign ownership of securities ventures.
Regulators let HSBC take full control of a securities joint venture in China three years ago—a special case due to Hong Kong’s close ties to the mainland. HSBC soon set up private banking there. Authorities now say foreign firms may invest in wealth management units of Chinese banks, and most recently lifted a cap on foreign ownership of securities firms.
In December, JPMorgan said it had won permission for J.P. Morgan Securities (China), the bank’s new majority-owned venture, to launch securities and futures services. In March and April, JP Morgan, Credit Suisse, Morgan Stanley and Goldman Sachs all announced plans to raise their stakes in their Chinese securities joint ventures to at least 51%—in some cases taking 100%. Credit Suisse called it “a significant milestone in the bank’s China strategy.”
Goldman Sachs called taking 51% of Goldman Sachs Gao Hua Securities just a start. “We will be seeking to move towards 100% ownership at the earliest opportunity,” Todd Leland, co-president of Goldman Sachs in Asia-Pacific, says.
Sensitive to the regulatory environment, non-Chinese institutions have said little to link their recent growth to private banking goals on the mainland. But they acknowledge aspirations. Helman Sitohang, Asia-Pacific CEO at Credit Suisse, noted a “long-term commitment to China,” adding, “We believe the securities entity will enable us to develop our onshore capabilities.” Morgan Stanley says its now-majority-owned Chinese venture has been striving to “fully meet … wealth management needs” since its launch in 2008.
Hong Kong–based spokesman Edward Naylor says Goldman Sachs plans to expand private wealth management as part of its broader growth plan for China: “We are looking to increase the number of private-wealth advisers and grow assets under management in the next five years.” Goldman has provided private-wealth management services in China through its partnership with Beijing Gao Hua Securities since 2009 and now “is seeking to move to full ownership of its onshore business units.”
Underscoring overseas interest in China’s affluent was a market report last year by China Construction Bank (CCB) and Boston Consulting Group. The report counted 1.67 million individuals nationwide with at least 6 million renminbi (about $845,000) in investible assets each, in 2018, pegging the market value of their holdings at no less than $1.4 trillion.
Until now, domestic players have been protected by regulatory limits on foreign activity. ICBC, for example, has offered private banking for 12 years and boasts more than 5,000 teams serving 158,000 clients nationwide. Concurrent with the announcements by Morgan Stanley and Goldman in March, ICBC’s private banking unit unveiled “a new round of service transformation and upgrading” to “further improve the quality of customer-centric integrated services.” This will encompass “a full range of value-added service systems for high-net-worth clients and their families, covering health, business, finance, heritage, art, life and other fields.”
At a conference last year, CCB’s then- Executive Vice President Zhang Lilin cited fintech as key to future private banking success. “A private bank must keep up with the times,” he said.
China’s easing began “as political rewards for ‘good sovereign behavior,’” says Allen T. Cheng, a retired financial correspondent in China and now CEO of Advise Insight, a Beijing- and Hong Kong–based advisory firm. “UBS was allowed to take 100% ownership of Bank of Beijing more than a decade ago: the first and only foreign bank allowed to do so up to now.” The recent breakthrough, he says, is the culmination of a series of US-China Strategic and Economic Dialogue.
The takeovers set the stage for a dynamic phase for private banking in China. The nation’s affluent can expect to have a wider variety of offerings, more VIP rooms and, perhaps, a greater assortment of teas.