(January 19, 2015, Hong Kong)
Ladies and gentlemen, dear friends:
I am honored to be here for the annual Asian Financial Forum. The theme this year: “Asia: Sustainable Development in a World of Change” is of great significance against the global background at present. I would like to share with you today some of my thoughts on wealth management in Asia, which is a key concern for the continent in transition.
Enjoying a long history, wealth management is also an industry which never ceases to evolve with time. Ancient Chinese wisdom boasted rather sophisticated philosophy of wealth management regarding how to accrue interest and budget spending; while the Western traditions in wealth management originated from the private banking services in the 16th Century Switzerland, a tradition of comprehensive financial services which has since enjoyed widespread popularity in Europe and North America alike among the elite. In modern context, wealth management covers an even wider range of services, offering comprehensive solutions for wealth preservation, enhancement and inheritance to individuals, families, institutions and even states. Wealth management is of great significance in modern society. In terms of industry division, wealth management is a highly specialized and professional financial service aiming to achieve the preservation, enhancement and inheritance of wealth; with regard to economic and financial functions, via accumulating and allocating capital, wealth management facilitates the conversion from savings to investment; as for social functions, being a major component in constructing the social security “safety net”, wealth management makes use of asset allocation transcending life cycles and economic cycles as well as public policy arrangements including tax incentives, thus providing the society with a solution for the pension. According to the report by Credit Suisse, by the end of June 2014, global private wealth reached an aggregate size of USD 263 trillion, and AUM of global wealth management institutions enjoyed a 11% year-on-year increase.
Due to the early inception of market economy in the West and the consequently high demand for wealth management, wealth management industry in Europe and North America has witnessed exponential growth and gradually gained global monopoly. According to the statistics by Pensions & Investments and TowersWatson, the AUM of the top 500 asset management firms in 2013 stood at USD 76.5 trillion, of which North America and Europe accounted for USD 42 trillion and USD 26.3 trillion respectively, or 89.3% together, while Asia only accounted for USD 1.41 trillion, or 1.8%. In terms of numbers, of the top 500 asset management firms, only 42 are based in Asia, and the top 30 are all based in Europe and North America. In the past few decades, there was a significant amount of foreign-exchange reserve and savings outflow from Asia to financial markets in Europe and North America. In comparison, the financing needs in Asia’s economic development, especially in infrastructure construction and the growth of SMEs have been left unmet, and development of the wealth management industry in the region stalled.
The existing global wealth management landscape is not only attributable to historical factors, but also a series of profound institutional and structural issues: 1) Wealth management industry in Asia has yet to improve its overall competence and establish world-renowned wealth management brands. 2) Asian countries in general have a high rate of savings while lacking in investment intent and wealth management awareness. According to statistics, all countries with savings rate of 50% and up (the percentage of total amount of savings in GDP) are in Asia. 3) USD-dominated international monetary system only exacerbated the situation where Asian capital is used to buy USD assets. 4) Financial markets in Asia are less than reasonably-structured and lacking in both depth and breadth, with relatively low proportion of direct financing. 5) Historical traditions and legal environment in Asia lead to a lack in the contractual spirit and credit culture essential to support development of the wealth management industry.
With the outbreak of international financial crises, world economic map is constantly changing and the center for global wealth management is becoming increasingly diverse, providing crucial opportunities for the wealth management industry in Asia. Since the beginning of the 21st century, Asia has been enjoying rapid growth and dramatic increase in wealth, prompting significant demand for wealth management. According to the report by Allianz Group, in 2013, private financial assets in Asia saw a year-on-year increase of 12.2%, and China’s private wealth witnessed 23% growth, higher than the growth rate in the majority of regions in the world. In the decades to come, Asia is going to accelerate down the path of an aging population. Since most Asian countries have yet to improve national social security system and pension system, improving wealth management in Asia is a major measure in addressing the challenges brought by an aging population. Meanwhile, wealth management also caters to the need of Asian countries for reform, innovation and structural adjustment. As the growth momentum of world economy and international trade witnesses a slowdown, the new round of industrial and technological revolution is on the horizon. Against this backdrop, effective wealth management can facilitate the conversion of savings into investment, thus improving financing structure, accelerating capital formation, and supporting and cultivating new economic growth points.
In addition, with huge economic potentials, rapid growth rate, numerous investment opportunities, Asia also enjoys solid basis and conditions for wealth management. At present, Asia has already formed a rather sophisticated financial market system consisting of multiple financial centers including Hong Kong, Shanghai and Singapore. In 2014, the total market capitalization of Asia-based listed companies stood at USD 20.67 trillion, accounting for 32.1% of the world total. The outstanding value of bonds reached USD 18 trillion. According to the global asset management report by Boston Consulting group, the AUM in Asia (not including Japan and Australia) enjoyed a 17% growth in 2012, higher than that of North America (9%) and Europe (8%). In 2013, the number of account managers in wealth management firms in Asia enjoyed a year-on-year increase of 21%, far higher than the global average. There has also been a significant amount of regional economic and trade cooperation, with the trade turnover within the region amounting to USD 3 trillion. Capital flow brought by trade liberalization has made Asia the ideal ground for the development of wealth management firms. The implementation of China’s “One belt, one road” strategy in particular will effectively promote the orderly flow and optimized allocation of factors of production, creating new growth potential for the wealth management industry in Asia.
To take advantage of such opportunities to develop the industry and facilitate the shift from savings to investment in Asia, the following measures should be adopted:
1. Jointly promote integrated development of Asian financial markets. To improve the wealth management quality, Asia needs a more diverse and integrated financial market system with more depth and breadth. Although accounting for over half of the global trade, Asia still lags behind in financial development. Different financial markets in the region enjoy a diverse range of features but lack sufficient linkage. It is imperative to promote financial market accessibility among Asian countries and coordinate and integrate rules, systematical arrangements and standards of different financial markets in Asia, thus enhancing connection of infrastructure of different financial markets across Asia, boosting convenience of cross-border investment and financing, strengthening exchange and cooperation among financial firms and associated persons and enabling integrated development of different financial markets in the region.
2. Propel wealth management reform in Asia. Wealth management firms in Asia should be supported and encouraged to boost their comprehensive competitiveness and establish their reputation and brand image, as well as enable the transformation of the business model of wealth management in Asia. The new round of technological revolution has brought enormous opportunities for the restructuring of wealth management industry since mobile network technology dramatically reduced the cost of pooling the wealth of the general public. Assets and returns generated by wealth pooled from the general public is comparable to those by customers with high net value. Technology should be fully exploited to expand the scope of wealth management services from the rich elite to the general public, shifting the products from standardized to specialized, customized and diverse, allowing a more extensive investor base in Asia to share economic growth in the region via wealth management, thus further contributing to the construction of the social security “safety net” in Asia.
3. Cultivate wealth management culture in Asia. It is essential to raise the awareness and capability of wealth management through education and publicity. A popular Chinese saying goes “if you don’t manage wealth, wealth will not come to you.” The industry should advocate a customer-oriented business notion, cultivate contractual spirit where both the buyer and seller take respective responsibilities as well as the trust culture where integrity, honesty, prudence and diligence are valued. These soft powers need to gradually strengthen if we want to improve the institutional environment for wealth management industry in Asia.
4. Strengthen financial regulatory cooperation among Asian countries. The rapid development of wealth management industry must build on the protection of the lawful rights and interests of investors as well as joint efforts in cracking down violations and crimes. Regulators in different countries and regions should establish cross-border regulatory coordination mechanism to boost the quality of enforcement cooperation and join their hands in promoting sound and sustainable development of wealth management industry in Asia.
Hong Kong is a major channel that bridges Mainland financial markets and international markets. In 2014, we have seen great achievements in deepened financial cooperation between Mainland and Hong Kong. Of these achievements, the successful launch of the Shanghai-Hong Kong Stock Connect further expanded the depth and width of both markets, enabling them to further integrate and providing wealth management industry on both sides with more room to grow. The increasingly thriving demand for wealth management in Mainland in recent years prompted the rapid development of asset management services offered by fund management firms and dealers. However, domestic product range and channels for overseas investments are still narrow, constraining the scope of asset allocation. This calls for further financial cooperation between Mainland and Hong Kong, mutual recognition of funds, and improved QFII, RQFII and QDII arrangements, in order to drive forward the development of cross-border wealth management business between Mainland and Hong Kong. We are fully convinced that, as a center for international finance, global off-shore Renminbi and wealth management, Hong Kong will continue to serve as the leading pioneer and bridge in major financial reforms in Mainland including the internationalization of Renminbi and capital account convertibility, and will undoubtedly make even greater contribution to the development of wealth management industry in Asia.
I wish this forum a great success! Thank you!