China’s wealth market has quickly grown to become the world’s second-largest. Despite the current macro-economic challenges, it is expected to return to its growth trajectory over 2024 and 2025, reaching a total estimated value of over RMB 722 trillion ($100 trillion) by 2025. 

China’s wealth management market, especially for the private wealth sector, encountered major setbacks due to stock market volatility and a decline in real estate values. These issues, together with regulatory changes, have spurred significant transformation among Chinese wealth managers to mitigate rising challenges and industry reshuffles.

High-net-worth individuals (HNWIs), influenced by 40 years of wealth creation since China’s opening, now demand diverse services to facilitate wealth preservation and transfer. Regulatory adjustments have led to a reassessment of risk preferences, with established banking institutions gaining popularity among clients.

This transition has impacted market share and growth of assets under management, particularly in the trust industry that traditionally focused on real estate investments. The trust industry is currently mired in a multi-year downturn, and many are racing to diversify into broader wealth management services like next-generation education, elder care, and philanthropy planning.

As a result, China’s trust industry of some 60 companies is grappling with significant challenges. One is a decline in fee income that has dropped by an average of 20%. The sector has seen a 16% decline in revenue and a 22% drop in profit.

The year 2022 was the most challenging for China’s trust industry, with total profit declining 39.76%. Among the leading trust companies, only CCB Trust managed to report growth in both revenue and profit in 2022. Considering the low base effect, the situation improved slightly in 2023, with the top 10 trust companies growing revenue by 6.42% on average, and profits by 11.66% on average compared to 2022.

Instances of non-payment from investment products managed by Zhongrong International Trust have highlighted the challenges. Despite a notable decline in real estate investments by the trust industry that managed assets worth around RMB 23.92 trillion ($3.3 trillion) in 2023, a considerable RMB 1.02 trillion ($140 billion) was still invested in real estate as of the third quarter of 2023.

Since 2022, there have been regulatory changes that aim to steer the industry’s focus from real estate investment in the shadow banking sector to a more institutionalised wealth management approach. This shift will redefine the trust industry in the years ahead.

An important milestone was reached in China’s wealth management industry in 2023 as the mutual fund sector outperformed banks’ wealth management products (WMPs). Mutual funds are financial products typically offered by banks and financial institutions to retail investors seeking higher returns than traditional savings accounts. This shift underscores a broader change in investment preferences among Chinese investors, who are now increasingly favouring mutual funds over traditional bank WMPs. Regulatory reforms that eliminated the implicit guarantees offered by WMP issuers have influenced this shift.

The COVID-19 pandemic has accelerated trends towards safety, with China’s top 12 private banks now commanding 90% of the market share. As client growth slows, consolidation is expected to intensify competition, especially among smaller players.

The pandemic has reshaped the landscape of China’s private banking sector, catalysing a significant shift in client preferences towards the industry’s largest players. The flight-to-safety phenomenon intensified in an environment of heightened uncertainty. This led to a surge in the share of private banking clients opting for services from the top 12 banks in China, including the ‘big four’ state-owned banks and leading joint-stock banks, rising from 67% in 2019 to an overwhelming 87% by 2023.

The largest state-owned banks are Industrial and Commercial Bank of China (ICBC), Bank of China (BoC), China Construction Bank (CCB), and Agricultural Bank of China (ABC). This shift underscores the trust and reliance HNWIs place on institutions with robust resources, established branding, and extensive channels. 

The competitive landscape within China’s private banking sector is poised to intensify, particularly for smaller institutions. The primary driver of this increased competition is the anticipated slowdown in the growth of the potential client pool. After years of rapid expansion, there is a projected decrease of HNWIs. This deceleration will add more pressure on all players but will particularly impact smaller banks and financial institutions that lack the scale and breadth of services to compete effectively.

Low-yield investment environment on the horizon

In China’s wealth management industry, the current low-interest environment poses both challenges and opportunities. With total financial institution assets reaching RMB 461.1 trillion ($63.4 trillion) by the end of 2023, the sector is evolving amid declining consumer and industrial prices and persistently low interest rates—1% to 2% for deposits, 2.5% to 4.5% for loans. This landscape prompts a shift towards higher-risk, higher-return assets and facilitates low-cost corporate financing, fostering growth and competitiveness.

The widening interest rate gap between China and the US, influenced by the rate increases in the US, may redirect capital towards the US for higher returns, potentially putting pressure on a Yuan devaluation, and prompting Chinese wealth management firms to refine strategies against currency risks. US investments have a strong appeal to Chinese investors abroad, prompting Chinese firms to enhance their international investment options and risk-management strategies.

Need for highly skilled relationship managers

Recent regulatory reforms aimed at bolstering financial stability and transparency have intensified the need for professionals skilled in navigating complex regulations, particularly in areas like risk management and compliance. Additionally, the growing sophistication of Chinese investors has spurred demand for wealth managers with expertise in diverse asset classes, including overseas and alternative investments, as well as products aligned with environmental, social and governance aspects.

The scarcity of such talent limits the industry’s capability to provide comprehensive solutions. Conventional savings, real estate, and domestic equities are no longer enough to meet the varied investment objectives of affluent clients. This problem is compounded by a rising interest in alternative investments, such as private equity and hedge funds offering the potential for higher returns and risk diversification, that are currently not adequately addressed in the market.

Boom of family trusts in China

Family trusts emerge as a key driver of growth and innovation in China. In just a decade, the sector has seen trust scale to RMB 550 billion ($76.2 billion) by the end of 2022, a 34% year-on-year (YoY) growth. Today, family trusts manage a wide array of assets, moving beyond basic financial holdings to include company shares, real estate, collectibles, and other alternative investments to meet the increasingly sophisticated and personalised demands of clients.

Hence, trust companies are expanding into new business categories, focusing on high-quality growth. This includes services like securities investment trusts to meet capital market demands. Strong operational and technological capabilities, often supported by financial institutions, enhance a competitive position. Family trusts are also broadening investment strategies with equity, fund-of-funds, and real estate investment trusts, enriching offerings within a growing wealth management ecosystem.

Entrepreneurs and their families play a crucial role in China’s private banking sector, representing over 55% of clients surveyed by TABInsights. They seek banks offering integrated personal and business services for efficiency and convenience. Chinese banks like ICBC, Shanghai Pudong Development Bank, and BoC are leading with tailored offerings, such as BOC’s Entrepreneur’s Office. This pioneering initiative provides a bespoke service combining chief advisory expertise with BoC’s extensive resources, addressing diverse entrepreneurial needs comprehensively.

Going forward, succeeding in China’s wealth management industry will favour institutions that adapt and expand their service offerings, build highly skilled ‘international focus’ advisors, offer integrated wealth planning and advisory services, including tailored services for entrepreneurs and small businesses.

For deeper insights into China’s wealth industry, read China Private Wealth Outlook 2024