The central bank in China is delivering on its promise to abolish caps on foreign ownership. However, the liberalization comes amid unprecedented uncertainty, Jasper Yip from global consultancy Oliver Wyman says in an interview with finews.asia

Jasper Yip, in your report, you said the opening of the China onshore market would be a tipping point for global players. As a lot has changed in the last quarter, is this view still valid?

The opportunity in China for asset managers and private banks is structural rather than tactical, so it should withstand the Covid-19 crisis.

China's economy is shifting gears and can no longer be sustained by the shadow banking model. The regulator sees the need to move away from shadow banking credit towards better-priced capital.

«If anything, the impact of Covid-19 creates a more urgent need for stable capital»

Hence the central bank brought forward the timeline for looser licensing requirements to April 2020 – a year earlier than originally scheduled. If anything, the impact of Covid-19 creates a more urgent need for stable capital. In revenue terms, this represents a $15 billion opportunity for asset managers, private banks and securities businesses.

Who do you think will get the lion’s share of that $15 billion?

Half of that amount will likely go to asset managers, followed by private banks. Securities will be an interesting area because although there is a long term opportunity for global players, growth will follow a J-curve and will be less predictable.

Specifically, which private banks do you think will be first off the block? 

There is no segregated license for private banking, so private banks that can piggyback on a larger entity that is licensed will be ahead of the curve.

«Others, like the smaller Swiss banks, are slightly behind the curve»

That puts select players like UBS or J.P. Morgan at an advantage because they have already established large-scale operations and have dealt with both the regulator and the local market for some time. Others like the smaller Swiss banks are slightly behind the curve.

For these smaller Swiss banks, what is the best strategy? 

Smaller Swiss private banks will find asset management an easier entry point into the China onshore market because capital requirements are lower and licensing is fairly straightforward. The cost of a Private Fund Management (PFM) license is a fraction of the cost of a securities or banking license. As long as the entity can demonstrate solid investment capabilities, it’s capital requirements can be kept pretty low.

What would a Swiss bank’s USP for the China onshore market be? 

The local market is now ready to move away from a pure returns focus to a more sophisticated approach to investment.

«The biggest challenge for global private banks will be to adjust to the Chinese mindset»

For example, given the credit default crisis they have been dealing with for the past two years, Chinese investors are more interested in discretionary portfolio management today than they were before.

And what do you think their most significant challenge will be?

The biggest challenge for global private banks will be to adjust to the Chinese mindset. The reality is that the profile of a client in China is very different from that of a high-net-worth client or an ultra-high-net-worth anywhere else. So a banker who services the sixth generation of a family in Switzerland will have to make a conscious effort to understand a first-generation entrepreneurial client in China.

«Unfortunately, there is some tension between the demand for and supply of local talent»

These clients are typically heavy users of technology and very nimble.

Will private banks then look to homegrown talent for the onshore market?

Unfortunately, there is some tension between the demand for and supply of local talent. The market is still at a very early stage so although talent does exist, global private banks will have to fight for that limited pool.

Both Goldman Sachs and Morgan Stanley announced earlier that they would take majority stakes in their onshore ventures. Is there a difference in strategy between American and European banks?

It is significant that both banks have decided to move towards full ownership. In general, American players tend to exhibit greater swings in sentiment depending on the newsflow surrounding the trade war between the U.S and China.

The Europeans players, by contrast, have been relatively consistent in their view. Since a number of them are shedding costs globally, they have made the strategic decision to reroute resources to a high-growth market like China. 


jasper yip 501Jasper Yip is a principal in the financial services practice, based in Oliver Wyman’s Hong Kong Office. He covers clients across Greater China and Asia Pacific with topics related to capital markets, wealth/asset management, and fintech. Recently, he has supported various global financial institutions to formulate their China onshore strategy and operation plans. He holds a bachelor's degree in BBA (Global Business and Finance) from Hong Kong University of Science and Technology. He is fluent in English, Cantonese, and Mandarin.