Foreign Banks see “Super-rich” as Ideal Point of Entry

In an article published in the June 5 Wall Street Journal, Jason Leow highlights Citigroup’s current strategy to focus on asset management for China’s growing class of “super-rich.” The article focuses on several key drivers behind this strategy putting emphasis especially on the scale of how many extremely wealthy people there are in China and how this number is growing rapidly. There is another piece to Citigroup’s and other international bank’s decision to focus on this sector though, and it is related to a convergence of expansion limitations and product differentiation.

The foreign banks are desperate to take advantage of recent deregulation and establish a foothold in the country, but there are still a variety of hurdles and regulations that they must negotiate to establish operations in a new city – some foreign banks estimate that they can expand into a maximum of three new Chinese cities per year. China’s big four banks (Bank of China, China Construction Bank, ICBC and Agricultural Bank of China) have over 73,000 branches around the country (compared to 252 branches for the 73 foreign banks in China) and as such there is no chance that foreign banks will be able to compete with domestic banks for geographic coverage.

Boston Consulting Group released a report earlier this year stating that .4% of the China’s people hold 60% of China’s wealth (approximately USD 820 billion in assets) and the vast majority of these elite are located along China’s eastern seaboard — notably Beijing, Shanghai, Guangdong, Jiangsu and Zhejiang. Additionally, the foreign banks have product offerings that are tailored for the ultra wealthy, proven internationally and take advantage of investment strategies that are not offered by domestic institutions. So, a bank like Citigroup (or HSBC, or Bank of East Asia, or Standard Chartered Bank) focuses on the ultra wealthy because it not only serves to alleviate the pressure on geographic expansion but also enables them to best differentiate themselves from the domestic banks in a highly competitive, regulated industry.

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