Sun Yat-sen University together with CreditEase started a research project-Guangdong Financial Environment Research-in August 2013, which focused on mass affluent finance management in Guangdong province and rural area financial development.
One Thirds of Mass Affluent Were From Private Enterprises
Statistics revealed that Chinese mass affluent grew larger in recent two years. In 2010, mass affluent reached 7.94 million. In 2012, the number increased to 10.26 million, up 29.2% in two years. It was expected to reach 12.02 million by the end of 2013. The average investable assets was around 1.33 million yuan (USD 218,000).
As the number of mass affluent grew, how to preserve and increase wealth rose to the crucial problem for this group. One professor from Sun Yat-sen University said that Guangdong which accounted for one eighth of total GDP in China was the biggest province in economic scale and financial development. Guangdong province had the most active private business entities, therefore cultivated a large quantity of mass affluents.
Mass affluent refers to the middle class with investable assets between USD 100,000 to 1 million. Investable assets include cash, CD, stock, money fund, bond, insurance and other financial products, and investment property.
In 2012, Chinese investable assets added up to 83.1 trillion yuan (USD 13.61 trillion), increasing 13.7% compared with 2011.
The research showed that 43.1% of the mass affluent families with over 600,000 yuan (USD 98,250) had a total annual income between 110,000 yuan to 500,000 yuan (USD 18,000 to 81,875) in 2012. 33.9% of these families’ annual income was between 510,000 yuan to 1 million yuan (USD 83,513 to 163,751), and 18.3% had an annual income between 1.01 million to 5 million yuan (USD 165,388 to 818,753). We came to the conclusion that mass affluent in Guangdong province had pretty good income sources.
It was also found out that mass affluent in Guangdong mostly worked in finance and trading industries. Finance industry accounted for 25%, ranking the top. Followed by trading, with 14%. Manufacturing occupied 12%, while real estate created 8% mass affluent. In addition, about 13% of mass affluent came from organizations, i.e. governments and public institutions. From the perspective of the nature of business, 35% of mass affluent were from private enterprises and 31% were from state-owned enterprises and public institutions. 25% were from foreign and joint venture enterprises. From the perspective of the occupation, senior manager accounted for 39%, and staff accounted for 22%. While, surprisingly, entrepreneur only represented 19% of mass affluent in Guangdong province.
72.5% of Wealth Came From Salary and Dividend
Mass affluent’s wealth came from a variety of sources, which mainly was salary, dividend, enterprise income, financial investment, real estate investment, property inheritance, freelance income. The major wealth of 72.5% families from Guangdong province came from salary and dividend.
Mass affluent class with different investable asset size had basically the same structure of wealth sources, notably, people with investable asset between 3 to 6 million yuan (USD 490,566 to 981,133) had lower percentage of salary and higher enterprise income in their wealth sources compared with people who owned between 600,000 yuan to 3 million yuan (USD 98,113 to 490,566).
Of all the respondents in this survey, total assets of the family between 600,000 yuan to 3 million yuan (USD 98,113 to 490,566) accounted for 43%, 30.9% were between 3 to 6 million yuan (USD 490,566 to 981,133) and 12.2% were between 6 to 10 million yuan (USD 981,133 to 1.64 million). About 8.8% had over 10 million yuan (USD 1.64 million) total assets.
A large number of mass affluent’s assets ranged from 600,000 to 6 million yuan (USD 98,113 to 981,133). From the aspect of the total assets structure, 46.5% of total assets were consisted of real estate valuation, and 15.1% were consisted of cash and CD, 12.1% were consisted of industrial investment value. The rest were consisted of durable consumer goods, stock, bond, foreign exchange future and collection.
Mass affluent in Guangdong preferred investing real estate. 42.8% mass affluent owned one house, while 34.8% had two houses. Families with three and above houses accounted for 17.5%. The analysis of mass affluent mortgage revealed that 57.7% of real estate investors didn’t have mortgage, and 24% of these families’ mortgage was smaller than one fourths of their property value. 13.7% of families’ mortgage ranged from 25% to 50% of property value, merely 4.6% of families’ mortgage was more than 50%.
Except for real estate investment, cash and CD ranked the top. Financial investment only accounted for 11.3%, which indicated passive attitudes of mass affluent towards financial investment.
Mass Affluent Favored Stock and Real Estate
This research showed that stock and real estate were the favored investment products of mass affluent in Guangdong. Other products included money fund, financial products of banks, gold and foreign exchange.
For people with different assets, their investment products tended to differ. Mass affluent with 600,000 to 3 million yuan (USD 98,113 to 490,566) assets mainly chose stock and financial products of banks, during which 48.54% put more money in stock and 34.83% put it in financial products of banks. Mass affluent with 3 to 6 million yuan (USD 490,566 to 981,133) assets preferred to invest in stock market and real estate with 53.13% and 45%.
Though the international economic environment of 2013 was complex and internal growth slowed down, still 89.45% mass affluent chose to invest with idle funds. 34.83% even said they would increase investment in the risky financial market in 2013.
Mass affluent with with 600,000 to 3 million yuan (USD 98,113 to 490,566) investable assets would use 60% of idle funds to invest, with 12.81% which was 3 percentage points higher than those with 3 to 6 million yuan (USD 490,566 to 981,133) investable assets.
Stock market experienced a downturn in recent two years, but it’s high ROA attracted mass affluent in Guangdong. Real estate was the second choice of mass affluent, despite the government tried to stabilize housing price. Money fund was also a very important investment choice for mass affluent, with 41.11%.
As their wealth grew, part of mass affluent in Guangdong began investing overseas.
This research found out that mass affluent class in Guangdong generally had low needs of overseas investment and relatively high needs of overseas products and services. More than half of mass affluent’s knowledge of overseas investment were quite limited, they had low risk preference.
2.47% of respondents in this survey were emigrants, and about 16.01% prepared to move overseas. Still, 80% didn’t want to become emigrants.
Although most of mass affluent didn’t think about moving to foreign countries, 75% of them considered sending their children to study abroad. Expenditure on studying abroad was a large part for mass affluent. North America was the first choice of studying abroad, accounted for 49.25%. Europe ranked the second with 18.53%. Hong Kong, Macao and Taiwan ranked the third with 17.27%.
According to the research, among those who owned overseas assets, 57.89% had less than 20% overseas assets. 25.26% acquired overseas assets which occupied 20% to 40% of their total assets. Besides, 9.67% had 40% to 60% overseas assets and 7.08% had over 60% overseas assets.
North America was the top overseas investment destination, accounted for about one thirds. Europe occupied 13.83% of overseas investment, Aisa occupied 12.77%. Hong Kong, Macao and Taiwan together occupied 6.64%. Overseas investment mainly included stock, gold, foreign exchange and future. Stock was the largest part, with 34.64%. Gold, foreign exchange and future accounted for 19.74%, real estate accounted for 13.45%.
9.88% Chose Professional Asset Management Agencies
Most of respondents in this survey said they and their families managed their assets, merely 9.88% said they chose professional asset management agencies.
Professor Zhou from Sun Yat-sen University commented on this phenomenon that most mass affluent in Guangdong did not consider their assets were large enough to require professional asset management services. What’s more, asset management service cost, and many people don’t trust their wealth to strangers. Mass affluent were still not familiar with asset management services though there were plenty of financial products out there.
Only 36.2% thought they needed asset management services, most people preferred to manage their assets by themselves. As for the knowledge of different asset management agencies, 48% knew about security companies’ asset management. 33.5% knew about private banks’ financial products, and 29.5% knew about insurance companies’ finance management. 25.8% said they understood third-parties’ asset management services.
The survey result showed that 23.2% mass affluent in Guangdong were using financial products of asset management agencies. Among those who accepted financial services, 47% chose security companies, 30.9% chose private banks, 26.5% chose insurance companies, 31.7% chose third-parties and 22.6% chose two and above agencies. Compared with previous report on China mass affluent, mass affluent in Guangdong had a lower percentage in consulting asset management agencies than national average of 73.7%. But they had higher preference of security companies than national average of 14.1%.
Professor Zhou analysed that the difference in the choice of asset management agencies indicated that mass affluent in Guangdong were more likely to accept different financial products. Banks had built a reliable public image in China as a traditional financial institute, therefore, private banks had the highest acceptance rate on national basis. Guangdong was the regional finance center in China, security companies, insurance companies and third-party finance institutes all grasped a part of market. Cantonese had a variety of choices for asset management.
When it comes to financial management advice, most would trust families, relatives and friends or decide on their own rather than seeking help from professionals. 51.5% of respondents trusted families, relatives and friends recommendation, 31.5% said that they chose the asset management agencies because their families or relatives and friends worked there. 21.2% knew the agencies through TV or online reports and advertising. 27.3% had attended these agencies’ lectures and activities, or had been visited by their account managers.
Over 80% said they knew about these financial management agencies because of families, relatives and friends. Media and account managers visit turned out to be ineffective, financial agencies should put more efforts on marketing.
Mass affluent admitted that their priority when choosing a professional asset management agency were ROA and profession. 54.6% considered about the flexibility of products and expected ROA, 38.8% thought about past performance of the product. 38.1% thought profession more important, and 37.3% focused on the brand influence of the agency.
Chinese consumers focused mostly on ROA when choosing an asset management agency, and the brand influence of the agency was also built on past performance. The research also found out that consumers didn’t pay attention to the service attitude and comprehensiveness of consulting information. It may be that financial management is a high-end service which most of agencies have good service attitude with little difference. Overseas investment convenience was not one of the important factors, once again proved that Chinese mass affluent preferred to build their asset portfolio in China.
Professor Zhou regarded that financial management service market in Guangdong was not mature yet, most consumers didn’t realize the value of professional finance management. Guangdong professional asset management market had huge potential in the future.