Wealth Management in China - Book Report/Review Example

?Wealth Management in China (Discussion Report Overview The paper provides an overview of the financial system of China from a cross country relative perspective. The paper reviews the potential wealth management business within China which is rising. Wealth Management refers to a perspective in which the country takes initiatives for the development and enhancement of the wealth of the country. To accomplish such an objective the country has to manage the resources of fund generation as well as try to control the negative forces that will cause hazards in the way of fund creations. Success in the process of efficient wealth management brings in job opportunities which reduces unemployment and also leads to the overall development of the country. But if strategic measures taken for the management of wealth are not appropriate, it may lead to serious problems and also affect the economy of the country. 2 Introduction China is the second largest wealth management country in Asia with considerable wealth creations driven by economic growth in the recent years which is unprecedented. Currently China has the second largest number of high net worth (HNW) individuals in Asia Pacific, i.e. about 1.3 million with a combined wealth of $4.3trillion. China accounts for 13.4% of the total HNW individuals and 28.2% of the ultra high net worth individuals (UHNWI) in the Asia-Pacific region with a growth rate of 7.8% in the Chinese market. The good aspect of the study is the demographic make-up of China that makes it extremely enticing to wealth managers as the population is educated and technologically knowledgeable. In addition to it, the rising disposable income and the growing interest in sophisticated wealth management services have aided to the development (Accenture, 2012, p.1). 3 Performance of China’s Financial System Much of the wealth of China has been generated in the course of rapid economic expansion by the financial system in the past two decades. In provisions to the total market capitalization, over the period of 2001-2007 the stock market of China is at 64% of its GDP which is slightly larger than the average GDP of 58% of other emerging economies of the world. Over 2001-2007, in terms of total bank credit to non-state sectors the size of China’s Banking System is 116% of its GDP. In terms of the fixed asset investments the four important financing sources for all firms in china are FDI, the state budget, bank loans, and self-fundraising, in which self fundraising and bank loans compose the main part. Over the period of 1994-2009 the total self-fundraising by all firms have grown at an annual average rate of 23.6% and at the end of 2009 has reached $2,213.2billion. The total bank deposits from individuals and the rate of household savings have been growing since the mid-1980s. 4 Banking Sector Reforms The banking sector of China is dominated by large state owned banks which imply that the degree of competition within this sector is low. During the last decade, the most important problem for the banking sector of China and the entire financial system was the amount of NPLs (Non-performing Loans) within state-owned banks which resulted in poor lending decisions. Recognizing the responsibility and importance of reducing NPLs in the large state-owned banks, the government of China instilled large amount of foreign currency reserves into these banks so as to improve their financial position. Another measure to reduce NPLs implemented by the Chinese government is the establishment of state-owned Asset Management Company. These measures led to the reduction of NPLs in the recent years. 4.1 The Initiatives taken by the State-owned Banks in reduction of NPLs The efficiency of state-owned banks is also responsible for reduction of NPLs. Firstly, the state-owned banks have diversified and improved their structure of loan by increasing consumer loans and initiating risk management policies and active monitoring for loans made to State-owned enterprises. Secondly implementation of the privatization process including the listing of state-owned banks has served as an effective way for improving the efficiency. The two imminent issues related with the privatization process is the structure of the banking sector and the dual role played by the government of China as regulator and majority owner. Thirdly, reformation in the organization structure of banks and the provision for more incentives to banks and their employees also led to the development of efficiency. But poor and inconsistent enforcement of bankruptcy laws and creditors protection in banks hindered in the process of improvement of efficiency. 5 The Changing Landscape As wealth management is an important service to banks and financial institutions provided across customer categories, the focus on HNW segments and mass affluent have been increased with a combination of do-it-yourself services, advisory services, and customized and management reporting. Wealth management and private banking customers are being cautious with their investments and are seeking better service providers. The banks in China have realized that the in the competitive market the range of products with their features are themselves the key differentiators. So the investment sphere must be spread across a broad variety of products with a distinct transfer from traditional investments in equities, fund and fixed income to alternative investments like real estate, structured product, hedge fund and private equity (Infosys Technologies Limited, 2009, p.4). 6 Conclusion Though China has the second largest wealth management market in the Asia-Pacific region, yet from the point of view of westerners it is an emerging market. The reasons underlying this are- The financial market of China can be considered as immature with unprotected property rights and no banking secrecy. Although in certain areas the Chinese Government has began to liberalize, yet tight regulations and considerable restrictions regarding international capital transfers still exist in some areas. Big foreign players are entering into the market with the help of co-operation. On the establishment of good client relationships long-term planning can be considered. But short-term planning is noticed to dominate the investment behavior of Chinese clients so as to convene their financial objectives. Entrepreneurs are the major target clients for private banking (Deloitte, 2008, p.1). References Accenture. (2012). Understanding the High Net Worth Market in China. Retrieved from: http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-CM-AWAMS-POV-High-Net-Worth-China-Final-Oct-2012.pdf. Allen, F. et al. (2011). China’s Financial System: Opportunities and Challenges. Retrieved from: http://finance.wharton.upenn.edu/~allenf/download/Vita/china's%20financial%20system%20oct11.pdf. Bain & Company. (2011). China Private Wealth Report. Retrieved from: http://www.bain.com/Images/2011_China_wealth_management_report.pdf. Deloitte. (2008). A point of view of China’s wealth management market. Retrieved from: http://www.deloitte.com/assets/Dcom-Switzerland/Local%20Assets/Documents/EN/FSI/ch_en_POV_wealth%20mgt%20in%20china_102008.pdf. Infosys Technologies Limited. (2009). China: The Wealth Management Agenda. Retrieved from: http://www.infosys.com/finacle/solutions/thought-papers/Documents/China-The-Wealth-Management-Agenda.pdf. The Boston Consulting Group. (2011). Wealth Markets in China. Retrieved from: http://www.bcg.com.cn/en/files/publications/reports_pdf/BCG_China_Wealth_2011_ENG_Final.pdf. Read More