China’s private banking market starts shaping up
Seven banks operating in China have so far been granted licences under the new qualified domestic institutional investor (QDII) regime including HSBC and Citigroup. Product launches on the back of the new regime last month are starting to give an indication of how the Chinese private banking market might look once the deregulation programme is complete. The QDII regime effectively allows banks operating in China to purchase a quota of foreign exchange to invest client funds offshore. Perhaps unsurprisingly given China’s fledgling domestic securities market, the initial product launches last month suggest that currency-linked structured products are likely to be a lead product for private investors. Industrial and Commercial Bank of China (ICBC), China’s largest foreign exchange bank, issued a half-year-term product linked to the euro-US dollar exchange rate. ICBC, which has international investment from Goldman Sachs, Allianz and American Express, will invest in a structured note issued by Banque Internationale à Luxembourg. The product aims to yield 3 per cent-7 per cent. ICBC claimed to have sold $25m (e19.6m) of the product in the first four days after launch. The bank has indicated there will be a follow up product, although details have not been released. Of note, ICBC’s quota under the QDII regime was $4.8bn. HSBC, which was the first international bank to receive its QDII licence with a quota totalling $500m, also launched a currency-linked product. The capital protected structured note is linked to a basket of currencies, comprising euro, Korean won and Indian rupee against the US dollar. The note has an 18-month tenure and a minimum investment of $10,000. The return is variable up to 18 per cent. HSBC also launched an equity-linked note pegged to the Hang Seng index. The note has a 24-month tenure. Meanwhile, Bank of East Asia (BEA), which has a QDII limit of $300m, also launched a currency-linked note, in this case a cable-linked deposit product. By contrast, Bank of China (BOC) focused on meeting demand from the institutional market with funds investing in money markets, short and medium-term corporate and government bonds, as well as asset-backed securities and mortgage-backed securities. The bank has indicated that the product range will shortly be opened up to private investors. BOC is backed by a Royal Bank of Scotland and looks set to be the market trendsetter for private banking services in China going forward. BOC is currently planning to launch a private banking office in Beijing’s Tiananmen Square, which will be co-branded either with RBS or with Coutts. Also of not is the fact that BOC’s QDII quota was $2.5bn. Another two of China’s banking giants, China Construction Bank and Bank of Communications, are also expected soon to offer QDII products. Finally, Citigroup was the seventh bank to receive its QDII licence, but has not released details of its quota or product range. Interestingly, however, Citigroup has also been approved to offer custodian services to other foreign wealth management firms operating in China. Ted Wilson is a consultant at wealth management strategy think tank Scorpio Partnership
