ANALYSIS: Wealthy Chinese investors rush for offshore assets

Hong Kong — Investment products in Hong Kong, such as insurance and high-yield time deposits, are seeing resurgent demand from wealthy Chinese who aim to shield returns from a downturn in the domestic economic and property sector, and also a weaker currency.

The trend became evident last year but had accelerated in recent months after China relaxed investment rules for the “wealth connect” programme in February, Hong Kong wealth managers said.

It is sparking a scramble among financial firms in Hong Kong to seize the opportunity and should help the city burnish its status as a wealth hub after being hit in recent years by pro-democracy protests, Beijing’s tighter control and geopolitical tensions.

Those factors had pushed clients and wealth managers to foray into or expand in rival Singapore.

“There are about 45-million affluent individuals in China, and increasingly they want more international exposure, education and protection,” said Maggie Ng, HSBC’s Hong Kong head of wealth and personal banking. “There is an increasing demand to manage wealth outside China.”

Launched in late 2021, “wealth connect” allows residents of nine cities in the southern province of Guangdong, which borders Hong Kong, to buy investment products sold by banks in Hong Kong and Macau, while allowing residents of the two offshore centres to do the same in the world’s second-largest economy.

Under the programme, investments by mainland investors into Hong Kong and Macau hit 13-billion yuan ($1.8bn) in March, up nearly eight times from February, data from the Chinese central bank showed. Inflows in April grew 70.5% from the preceding month to 22.3-billion yuan, while northbound investments in April by Hong Kong and Macau residents were just 14-million yuan, largely unchanged since the programme was launched.

HSBC, a leading wealth manager in Hong Kong, saw new account openings in the city rise by more than three times in 2023 from pre-Covid level in 2019, driven mainly by Chinese mainland retail wealth clients, said Ng. The strong momentum continued in the first quarter of this year, she said, declining to give details.

Apart from the mass affluent who are using the cross-border investment channels, ultra rich people from China and Southeast Asia are also exploring their options in Hong Kong, according to executives at global wealth managers.

“If we look at the inquires [from potential family office clients] that we got last year versus the previous year, we’re talking about an 85% increase,” said LH Koh, UBS’s head of global family and institutional wealth for the Asia–Pacific region.

More than 60% of the inquiries in Hong Kong were about setting up family office-type entities in the city by mainly Chinese clients, he said, adding that the trend had continued this year.

Sitting on cash

While there are still tight capital controls in China, with an individual allowed to remit a maximum $50,000 a year, the tripling of the investment cap to 3-million yuan under the “wealth connect” programme in February has bolstered outflows.

China is presumably unfazed about outflows under the programme because the investments are eventually required to be remitted to the country.

Wealth managers in Hong Kong were pushing the authorities to further relax the investment scheme to meet the demand of richer clients to move larger sums to Hong Kong, industry executives said.

The Hong Kong Monetary Authority would “continue to explore further enhancement measures in due course, taking into account the industry’s feedback as appropriate”, the city’s de facto central bank said in a statement to Reuters.

To capitalise on the momentum, some banks in Hong Kong have started offering as much as 10% a year interest rates on short-duration deposits as part of the wealth link programme compared with about 2% offered by the banks in the mainland.

Besides banks, Hong Kong-based insurers have also seen a surge in demand from mainland customers since border controls previously installed to curb the spread of Covid-19 were lifted in early 2023.

Horace Yip, Citigroup’s private banking head of Hong Kong and Greater Bay Area, said the bank saw a record level of account openings in Hong Kong in 2023, and the momentum remained strong this year, thanks to the demand from mainland Chinese clients.

The surge in demand comes against the backdrop of Chinese mainland investors facing limited options to park their cash at home, as yields of long-dated bonds have dropped to record lows. China’s currency is hovering around its weakest since 2008. And returns on stocks and property have plunged.

“Many mainland people are now sitting on cash,” said Ms Wang, the owner of an internet firm in Shenzhen whose bets on opaque investment products at home soured after the collapse of a leading shadow bank late last year. Wang said she had since parked her money in a current account in the mainland and is studying the “wealth connect” programme now.

Reuters