China likely top Asia wealth market by 2015: Bain

By Jeffrey Hodgson

HONG KONG (Reuters) - China is likely to surpass Japan by 2015 as the Asian country with the highest number of wealthy individuals, an executive with management consultancy Bain and Company said on Thursday.

But many global financial firms, including private banks who cater exclusively to the wealthy, are underestimating the difficulty of winning a profitable piece of the booming market, said Johnson Chng, head of the firm's Greater China financial services practice.

"Outside, from afar, China looks attractive, but from the inside it's a lot more complex ... You need to get in early in order to learn the market, because the customer behavior is very different," he told the Reuters China Century Summit, held at the Reuters office in Hong Kong.

"The early years may be more about just getting up the learning curve, rather than making a profit out of it. Then when 2015 comes, or whichever year the market is ready, you are also ready."

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

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

But since the start of 2006, Chinese stocks .SSEC have risen more than fourfold, powered by double-digit economic growth.

"One would expect that China will continue to grow at 10 to 12 percent for the next 5 to 10 years. And that kind of economy is going to create a lot of million or billionaires," said Chng.

"You can start to imagine the number of billionaires being created from the stock market. The other market is property."

That has also boosted the ranks of the "mass affluent" worth between 200,000 yuan ($26,520) and 8 million yuan, who are estimated to number more than 1.1 million.

While global financial firms like Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and HSBC (0005.HK: Quote, Profile, Research, Stock Buzz)(HSBA.L: Quote, Profile, Research, Stock Buzz) have entered the market, Chng said there has been an absence of major sales campaigns, and that foreign players almost seem to be limiting efforts while they figure out their strategy.

The Singapore-born consultant said that may be a sensible response, given the stronghold that the major Chinese banks, which have massive branch networks, have on the market.

While many Chinese customers complain about their banks, they also perceive them as secure and therefore appear unwilling to change, he said.

"On the one hand they are unhappy. On the other hand they are very loyal. It's like you don't love your wife or husband any more, but you stay married. If you look into psyche, it gives you some sense of how to crack the code," he said.

"Almost every foreign bank would want to play in the wealth management space in China, but to play they should not fight directly head on with the local banks. They will lose."

Chng said foreign players should focus on two key areas to win business in China: bolstering their brand in a market where even many of the world's largest banks are unknown, and providing better service than their Chinese counterparts.