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Author:   Article source: FTCHINESE  Hits:1344  Add time:2009-5-29  
Until recently, foreign banks had only a narrow hold on the Chinese market. If they wanted to sell wealth management services to rich Chinese, they were usually confined to their operations in Shanghai or Beijing, or they tried to meet Chinese clients while they were overseas.
However, the situation is changing fast. In order to fulfil its obligations from its entry into the World Trade Organisation, China this year allowed foreign banks to begin offering local currency services on the mainland.
As a result, foreign banks are starting to invest much more heavily in their Chinese operations.

So far, 12 have established locally incorporated operations under the new rules and several are implementing plans to establish a network of branches around the country, away from the established centres of Shanghai, Beijing, Guangzhou and Shenzhen. And one of the main targets of these branch networks is the sale of wealth management services.
“It has surprised people just how much demand there is in those cities outside the main centres,” says Richard Yorke, chief executive of HSBC in China. “There is much more opportunity than was originally imagined.”
HSBC, for instance, now has 53 outlets in mainland China in 15 cities – 38 of which offer its “Premier” service for wealthy clients. Citigroup is growing quickly, Standard Chartered has a presence in 15 cities, and Bank of East Asia has 40 branches in China.
It is not hard to see why foreign banks are excited about wealth management and private banking services in China.
Last month, when Forbes magazine unveiled its annual China rich list, it showed that there were 66 people in the country with assets worth more than $1bn. Meanwhile, a survey by Boston Consulting Group concluded that China had 310,000 households at the end of 2006 with liquid assets of more than $1m – the fifth largest number in the world. By 2011, that number is expected to rise to 609,000.
Yet the very same survey found that Chinese kept twice as much of their wealth in cash or bank deposits as the global average. The results are a clear indication of both the potential for wealth management services in the country, but also the infancy of the industry at present.
To try to tap into this rapidly expanding market, foreign banks tend to focus on four main areas of the country.
The most prominent is the region around Shanghai, straddling Jiangsu and Zhejiang provinces, which contains a string of prosperous industrial towns – such as Hangzhou, Suzhou, Nanjing and Ningbo – that have spawned hundreds of successful private entrepreneurs.
The area around Guangzhou in southern China – just over the border from Hong Kong – is another hotbed of private enterprise and the banks are focusing on towns such as Zhuhai and Dongguan.
In the so-called Bohai region east of Beijing, cities such as Tianjin, Dalian and Qingdao have attracted interest, while a number have also expanded into the western region in Chongqing and Chengdu.
Bankers say that cities such as Chengdu and Shenyang in the north-east are more promising than their immediate wealth would suggest, because they have very large catchment areas.
“We are gradually moving inland,” says Christine Ip, head of consumer banking at Standard Chartered. “Being able to offer local currency services is a much more important selling point in second-tier cities than it is in Beijing, Shanghai or Guangzhou.”
However, although the second-tier cities in China offer huge potential, foreign banks face considerable obstacles to their consumer operations. Several say that their new second-tier city branches tend to focus first on corporate business.
For a start, the banks often know the companies in these cities from other services – such as cash management or trade finance.
However, they do not yet have access to the national credit bureau data from the Central Bank, which is an essential part of consumer banking.

At the moment, they can get hold of such data only in Shanghai and Shenzhen. As a result, the personal banking operations in smaller cities tend to focus more on managing investments than on lending activities.
“Without proper access to credit-bureau data, lending to individuals is something we need to manage very carefully,” says Ms Ip.
As they spread across the country, the foreign banks are also facing increasing competition in private banking and wealth management from the large Chinese banks, which are eager to reduce their dependence on their traditional lending business and to boost their fee income.
The local banks do not have the same range of sophisticated products or such well-qualified private bankers, but they do have extensive branch networks and established banking relationships with many of the target clients.
Hiring and retaining staff is also a big challenge – as it is for most international companies in China – especially given the rapid pace of expansion that many of these banks are seeing.
However, there are plenty of graduates from second-tier cities who would like to return home if they could find good prospects there, and foreign banks are starting to offer that opportunity.
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