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Not Only Cheap Electronics: The Chinese Are Manufacturing High Net-Worth Individuals

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Hong Kong and China, in general, have established themselves as global manufacturing capitals by inexpensively producing a variety of electronics, clothing, knick-knacks, etc. But Hong Kong and China have now started "manufacturing" something much more lucrative and exclusive: high net worth individuals. One in seven adults on Hong Kong Island is a millionaire. What's more is that the average age of Hong Kong's millionaire is 48 while China's affluent is average age is only 36! Offering products and services and establishing relationships within this demographic will prove both lucrative and lengthy.

Although there are many, service providers to the ultra-high net worth/high net worth, this trending is especially important for financial services firms as the opportunities are there. Wealth managers, global private bankers, alternative investment managers, and others should take notice. This is a burgeoning platform with a prospect pipeline of millionaires literally being "manufactured." Considering the young age of Chinese millionaires, this trend is expected to continue. The trending is there; according to a report by CapGemini and Merrill Lynch, there has been an increase of 10.2 percent of total millionaires since 2006.

This bullish outlook is reflected in the mood of the population of Hong Kong having recently celebrated a New Year. This year, the "Year of the Dragon" represents strong and robust economic outlook as it is regarded as a powerful time. Asia is a continent filled with a new generation in the wealth creation mode. As compared with United States and Europe which are widely-considered to maintain a "wealth preservation" mind-set -- and, the Chinese, for example, are widely-known have a larger appetite for investment risk than Americans.

If you are seeking the attention of a lucrative, well-educated loyal group of UHNW/HNW prospects, look east. For those wealth management firms/advisers looking to grow their HNW business, why not consider Hong Kong? If you are serious about business development and growing your practice, consider these Asian/Chinese facts from CapGemini's "Asia-Pacific Wealth Report" -- 2011)

  • Household savings are highest in Asia/lowest in North America
  • Asians are more cautious about borrowing than their North American or European peers
  • They are much more open to conducting transactions online via the internet and have higher than usual adoption rates for mobile banking
  • They are trending to increasing the number of banking relationships per HNW from 3.6 in 2007 to 4.7 in 2011
  • 60 percent of Chinese HNWI have emigrated or are seriously considering for investment reasons including children's education and preferable retirement environment. This means they might eventually live in the US. China does not currently allow for dual-nationality.

As investors, here are some facts which I learned directly from the Hong Kong Trade Development Council from an event in December. I have written about this before but it bears repeating for financial services firms. Here are some other Hong Kong financial facts:

  • World's largest IPO market in 2009 and 2010; key capital raising center for Chinese enterprises
  • Asia's largest venture capital center
  • World's second highest per capita holding of foreign exchange reserves
  • Asia's third-largest stock market, seventh largest in the world
  • Low tax system (15 percent maximum for individuals, no value-added or sales tax, no capital gains tax)

These factors and more have created a favorable opportunity for business development in the fastest growing HNW region of the world -- Hong Kong and the rest of Asia. There are so many UHNW/HNW individuals that there is a documented shortage of wealth management teams with cross-enterprise knowledge and deep experience as the market is still so immature. Hong Kong (and most of Asia) is in the wealth creation phase whereas Europe is in the wealth preservation phase. This means that there is an emphasis on investment opportunities for the money created by the Chinese but Europeans, who are wealthy, are seeking advice on succession/estate planning, etc.

Chinese have the right set of factors to continue to fuel its economic growth. An indicator of growth, the Chinese stock market is reflective of the cheap manufacturing sector and related industries. There are reports of growing real estate market and perhaps bubbles in some large Chinese cities. The appetite for experienced and seasoned wealth managers, private bankers is there in Hong Kong and Singapore which are already established banking centers. Another characteristic of the Chinese investor is their more risk-tolerant than North American counterparts. Hong Kong has deep capital markets and friendly regulatory environment which makes it a perfect jumping off point for those looking to dip a toe into the Asian high net worth world. According to an article in Institutional Investor in February 2012, the number of money management firms in the city had risen to 798 at the end of 2010 from 580 just three years earlier. Chinese investors have also shown an appetite for "passion investments" including art, wine, stamps, etc. According to Patty Wong, chairman of Sotheby's Asia, "Hong Kong has become the sales center of the world. Its revenues are comparable to New York or London."

What does all of this mean? Brush up on your Mandarin (although English is an official language -- another plus!) And develop a yen for Chinese cuisine. There is an undeniable buzz of the future in Hong Kong where the densely populated city has created an amazing vertical skyline.

If you are considering a leap over to Asia, don't forget that this is the Year of the Dragon. In Chinese astrology, it is the only animal which is not real and thus special and revered. The time has never been better to consider an expansion in to Hong Kong or perhaps a strategic alliance with an already established Hong Kong partner.