Private banks face China challenges

By George Chen - Analysis

SHANGHAI (Reuters) - China's booming economy is creating more than 70 millionaires a day, but foreign banks don't have enough products, client managers or offices to tap into the market for top-end private wealth services.

Banks including Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and Standard Chartered Plc (2888.HK: Quote, Profile, Research, Stock Buzz) (STAN.L: Quote, Profile, Research, Stock Buzz) know the world's fourth-largest economy holds huge potential for private banking, but weak industry rules, strict foreign exchange controls, too few branches and a lack of expertise mean it will take years to reap profits.

"Market conditions for private banking business in China are still very immature," Shanghai Pudong Development Bank(600000.SS: Quote, Profile, Research, Stock Buzz) President Fu Jianhua told the Reuters China Century Summit.

"Almost every bank wants to get top-end customers, but no matter whether the banks are Chinese or foreign, the problem is whether we have enough professional private bank client managers to offer top-end services to customers," he said.

The limited range of products on offer due to China's highly regulated foreign exchange system is another obstacle.

"We are just in the start-up stage," Christine Ip, head of China consumer banking at Standard Chartered, said at the summit.

"There are not too many products we can offer, unlike in a mature market like Hong Kong, Singapore, or even Korea."

Some private banking units of foreign lenders in China act more as representative offices, as overseas lenders are not yet allowed to help individual Chinese clients invest directly in overseas capital markets.

Foreign private bankers can approach rich Chinese financial services consumers and lure them to invest in overseas stocks, but no legal contracts for private banking business involving investments in foreign assets can be signed on the mainland.

As a result, mainland Chinese typically travel to Hong Kong to do their private banking business.

NEW RULES

China is likely to surpass Japan by 2015 as the Asian country with the highest number of wealthy individuals, predicted Johnson Chng, head of the Greater China financial services practice at Bain and Co, a global management consultancy.

Japan was home to 1.4 million high net-worth individuals -- with more than $1 million in financial assets excluding their homes -- worth a combined $3.5 trillion in 2005, according to a report by Merrill Lynch and consultants Capgemini.

By comparison, mainland China was home to 320,000 such wealthy individuals, together worth about $1.59 trillion.

Many foreign banks, including Citigroup and Standard Chartered, set minimum asset levels for their private bank clients in China at $1 million -- a typical global threshold.  Continued...