Financial Planning / Wealth Management

Ongoing structural reform expected of mainland market

by Ada Ng

David Kwok, chief executive and managing director
Shanghai Commercial Bank Ltd
Photo: Edde Ngan

Opportunity knocks for financial professionals ready to embrace client diversity

Regional investment sentiment has taken a knock, partly due to volatile stock markets and fears of repercussions from the US credit crisis. In China though, the unanticipated fall in value of many investment portfolios underlined the importance of comprehensive wealth management.

Given the open door policy in the banking industry amid China's accession to the World Trade Organization, David Kwok, chief executive and managing director, Shanghai Commercial Bank Ltd, says the Chinese banking profession is now transitioning into an international system that values accounting transparency, international service networks and market capitalisation.

Naturally then, Mr Kwok sees bright opportunities for finance professionals in Hong Kong looking to capture new market opportunities in China. He also stresses the recent change in investment attitude towards portfolio diversification and wealth management, which is apparent among a growing number of high net worth people in China.

"Traditionally, property investment plus a small stock portfolio were very much the standard option for most Chinese people," says Mr Kwok. However, things are different now. "The growing affluence in China has spawned a new generation of investors who are receptive to risk and high return investment products," Mr Kwok reveals. These young and affluent individuals —m any of whom boast an entrepreneurial background —a re aware of the benefits of buying investment products from banks with established histories and credibility. "It is evident that more investors are approaching international banks for wealth management and professional advice," he adds.

Cutting edge

Hong Kong based banking institutions have the advantage as they can offer professional advice and the experience of handling structural and foreign investment tools and products. Mr Kwok believes that investors in Hong Kong are in many ways similar to their mainland counterparts. However, the portfolios held by mainland and Hong Kong investors indicate differing developmental stages of banking in the two regions.

Mr Kwok estimates that most mainland investors retain the bulk of their assets in savings, yet only about half of the average Hong Kong portfolio is in liquid assets. "This indicates that the mainland market lacks investment tools and channels; and highlights the huge market potential to be explored," Mr Kwok remarks, adding that Chinese people are less sophisticated in structuring their investment portfolio, so the investment tools currently available in China are relatively simple and lack variety. Despite this, Mr Kwok anticipates investment parity between China and Hong Kong in the near future. Hong Kong is capable of facilitating growth in the Chinese banking industry through its development stages using the extensive network and international experience of many Hong Kong banks.

Mainland financial planning and wealth management is set for future development. Mr Kwok expects significant growth in the long run as China transforms from an exportoriented manufacturing market to a modern economy driven by domestic consumption. "The change will open up investment opportunities, and this will extend beyond big cities like Beijing and Shanghai to second and third tier cities," he predicts.

In addition, Hong Kong will benefit from this growth alongside greater transparency in the mainland banking industry. Mr Kwok encourages Hong Kong banking institutions to value the importance of establishing strategic partnerships with mainland banks now.

"Banks will need to leverage the local experience and competitive advantage of mainland banks to capture growth opportunities," he notes.

Teamwork essential

Mr Kwok also foresees challenges for Hong Kong's small- and medium-size banks who look to develop a presence on the mainland. In particular, the lack of branch network, local staff and established customers in China will fortify barriers to entry.

In light of this, Mr Kwok suggests smaller banks avoid competing head on with major banks in mainland China. "They should identify their competitive competence with regards to the banking industry in China and focus on competing in niche markets targeting customers who seek unique specialist services throughout Greater China," he advises. "Establishing strategic partnerships with mainland banks is also an effective way to seize market growth over the border."

Banking professionals who remain in Hong Kong should also be aware of ongoing structural reforms in the mainland banking system. Market capitalisation, transparency, and industry policies are not set in stone, concedes Mr Kwok and product diversification will eventually make mainland banks more competitive internationally.

To prepare for the exciting growth prospects in the Chinese banking industry, Mr Kwok recommends young professionals make the effort to truly understand mainland culture and lifestyle. A good grasp of industry trends and regulations is also invaluable for aspirants looking to enter the China market.


Taken from Career Times 22 August 2008
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