Over half of China’s super rich hidden in smaller cities

Friday April 3rd, 11:00 HKT

土豪*“屌丝**”婚礼 PK*** Tuhao ‘loser’ wedding PK, china.caixin.com

China Business News (CBN) reports on the new phenomenon of more super rich Chinese living outside of China’s first tier cities than within. Don’t assume that all of China’s rich reside in Beijing, Shanghai, and Guangzhou, now the action has spread to less well known cities, and with it, their growing economic influence and purchasing power.

Published yesterday, the China Ultra High Net Wealth Report 2014-2015 《2014-2015中国超高净值人群需求调研报告》, commissioned by the Hurun Report in conjunction with China Minsheng Bank, surveyed all mainland provinces, targeting high net worth individuals with assets exceeding 500 million yuan (80 million dollars).

Report highlights:

  • 17,000 ultra high net worth (HNW) individuals
  • Average age 51 years old
  • 45% tier 1 cities, 55% tier 2/3 cities
  • Total assets 31 trillion yuan (4.96 trillion dollars)
  • Average assets 1.82 billion yuan (291 million dollars)
  • Their businesses are mainly in Beijing, Shanghai, Guangzhou, Zhejiang
  • Almost 60% have floated on the stock market
  • About half are in manufacturing, property or TMT

The study notes that China’s super rich ‘think of danger in times of safety’, as their wealth increases they’re looking to diversify their wealth to reduce risk. Financial professionals are in demand to help the rich transfer assets abroad, emigration, and succession planning. These are fairly extreme methods to protect wealth, implying domestic financial and legal reform is still off the mark. Services most in demand are fundraising, investment, M&A, overseas investment, and investment in works of art.

Show me the money!

What’s striking is that fundraising should be the number one requirement for China’s super rich, implying a bottleneck in China’s still developing financial system. 65% surveyed cited business expansion as the main demand driver, with 27% needing funds for M&A, and 8% for normal business operation. The fact that banks make up 77% of their current fundraising sources implies China’s closed banking system is insufficient to meet the needs of China’s large private enterprises, so more room for growth in the financial services industry.

Another aspect of the report is the blurred asset holdings in China between the boss and the company itself. As China’s still in the early stages of economic development, many firms are still run by their founders. When starting a company, most owners must pledge their own assets (i.e. their house) as collateral to the bank, but in contrast the report shows over 60% of ultra HNW individuals invest under their company’s name, with only a quarter using their own name. Of those investing under their own name, a massive 80% are focussed on increasing their wealth, as opposed to conservatively protecting assets against inflation. This falls to 40% for those investing under the company’s name. And 83% of the investments are performed by themselves or in-house teams, which means growth potential for third-party investment advisers in China.

The Great Escape

80% of the super rich surveyed said they have plans to invest abroad, with over half already executing overseas investments. Whilst the main driver for domestic investments are horizontal/vertical M&A, main reasons for overseas investments are expanding their business internationally and transferring assets abroad, 49% and 46% respectively. The challenges that China’s ultra HNW investors face overseas are primarily risk assessment, and understanding local regulations. To navigate these hurdles, most information is obtained from banks or social circles. In other words, where are the foreign Mandarin speaking service providers to cater to their needs?

As the report signs off with, if one is able to meet their needs and do business with the Chinese super rich, then who knows, maybe tomorrow it’ll be your name on the rich list.

 

(Article first to be published in English on chiecon, not to be copied or reproduced without permission).

* Affectionate term for China’s less well educated nouveaux riche

** Less affectionate internet slang meaning loser

*** ‘Player Kill’ derived from online gaming, similar meaning to vs. in competition

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