It has been only five years since the first private banking services started in China, many of which were offered by foreign-funded banks.

By 2012, China became Asia's most important high-net-worth (HNW) market [defined as individuals with more than $1 million in investable assets [excluding Japan], according to a recent report jointly released by China Minsheng Banking Corp and McKinsey & Company.

According to the report, China is driving most of the growth of Asia's high net worth individuals market. Revenues from private banking are expected to grow from 23.3 billion yuan in 2010 to 46.8 billion yuan by 2015, more than half of which will be from first- and second-tier cities.

China's rich have multiple private banking relationships and they value asset growth over asset preservation. China's HNW individual segment comprises mostly of males between the ages of 40 and 60. Today, on average, 60 per cent of Chinese HNW individuals have one or more private banking relationships. The number of private banking relationships increases significantly with increases in wealth: More than 90 per cent of Chinese HNW individuals with investable assets of at least 100 million yuan have one or more private banking relationships.

By the end of 2012, more than a dozen domestic banks, including state-owned lenders, city commercial banks and shareholding banks, had started offering private banking services to their clients.

In Wuhan, capital city of Hubei province, the wealthy are applauding the newly opened private banking service offices around the town.

"It's much easier visiting the offices in town than flying to Beijing or Shanghai - I used to fly to Beijing twice a week for a month to find a reliable wealth manager. Now I don't need to bother with that," said Qin Weiguo, a garment wholesaler.

Qin, 52, declined to reveal how much money he put in his private banking account at a state-owned bank. However, he said it was a seven-digit number.

He said before 2012, he was rejected by several banks when he applied to become a client of their private banking services.

"They politely told me that my money was not enough because the entry level of wealth was 10 million yuan," said Qin.

The situation changed on January 1, when regulators set a national standard for domestic private banking services of commercial banks providing to individuals with a wealth of 6 million yuan or more.

Second-tier cities in China already represent more than 30 per cent of the country's HNW individual wealth, compared with about 20 per cent for first-tier cities. Second-tier cities in the Yangtze River Delta Region [including cities such as Wuxi, Nanjing and Hangzhou] and the Pearl River Delta Region (with cities such as Dongguan, Guangzhou and Foshan) represent about 70 per cent of China's HNW individual wealth. Second- and lower-tier cities will continue to grow in share, said the Minsheng and McKinsey survey.

The survey, which polled 700 interviewees with investable assets of more than 6.5 million yuan in 29 cities, also discovered the average Chinese HNW individual is still not aware of private banking services. As many as 45 per cent of those interviewed say they have only a basic understanding or less of private banking services.

"I think private banking services are no different from retail services. It is just the same bank offering the same products to different people.

If you have more money, they will give you more benefits, such as an expensive ticket to a concert," said Chang Li, a 42-year-old restaurant owner in Ningbo, in East China's Zhejiang province.

"I think the VIP banking services are enough for me and I don't need anything extra, or a free gift during Spring Festival," said Chang.

The same or similar products and services for VIP clients and private banking clients are found in many banks, said Chen Zhi, a Beijing-based professional investor.

With a master's degree in finance and nine years of working experience in a shareholding bank in Beijing, Chen said he prefers to build up his own portfolio.

"My observation is that currently it is rare to find innovative products. What tends to be on offer is just another mutual fund. It partly explains why many wealthy people choose offshore investments or put the money in the real estate market, or even in illegal channels such as the usury market," said Chen.

The number of HNW individuals is expected to grow about 20 per cent annually from 2012 to 2015, reaching around two million, and the number of ultra-high net worth individuals [individuals with investable assets of more than 100 million yuan] will grow to 130,000 individuals, according to the Minsheng and McKinsey report.

According to a recent report by the Hurun Research Institute, between 2009 and 2011 some 50 per cent of HNW individuals' wealth was in cash or deposit accounts.—Asia News Network/China Daily