Despite uncertainties and headwinds in the global market, the growing ranks of China's affluent remain financially confident and active, though their engagement in long-term planning is still far from adequate, according to a recent industry report.
The China Rising Affluent Financial Well-Being Index, which marks its 10th consecutive edition this year with the latest one released on Oct 27, registered the largest year-on-year increase since 2021 — 71.99 — up 1.64 from a year earlier.
According to experts from Shanghai Jiao Tong University's Shanghai Advanced Institute of Finance (SAIF) and global financial services provider Charles Schwab — the compilers of the index — this is driven by positive developments across all four measured dimensions, namely, investor confidence, planning, wealth management and engagement in financial services.
The Chinese rising affluent group — individuals with an average personal annual income of 125,000 to 1 million yuan ($18,800 to 150,400) and investable assets of less than $1 million — has shown rising financial confidence ever since the index was first rolled out in 2017. Closer scrutiny of this group is crucial, as they will become a major force reshaping the Chinese financial sector with their rising affluence and increasingly urgent demand for wealth management services, said Thomas Pixley, general manager of Charles Schwab (Shanghai).
Reasons for such optimism have changed over the past three years, evolving from stable household income and expected increases in property prices, to recovery in financial markets and people's rising confidence in their wealth management capabilities.
However, planning is inadequate among China's rising affluent group. Though the planning sub-index has slightly ticked up to 36.21 from a year earlier, the reading is still around a historic low level. Only 54.9 percent of the 4,588 interviewees have established financial plans, 20 percent lower than that a decade ago. Most respondents simply equate financial targets with 10 percent annual increase in their assets. Few have come up with systematic planning regarding retirement or children's education.
"To some, planning is unnecessary as they have stable incomes at present or are content with their current financial status. Others think current financial planning may not apply to future scenarios once major changes take place. All these are based on the false assumption that financial planning is static. But the fact is, financial planning is a dynamic process which requires regular revision," said Wu Fei, an SAIF professor.
A complicated scenario can be seen in the perception and actual behaviors regarding asset management.
The rising affluent population's self-perceived risk profiles have become increasingly polarized. Compared with 2017, the share of respondents identifying as conservative and aggressive investors increased by 52.2 percent and 45 percent, respectively. But cash and fixed-term deposits take up nearly half of their asset management total. Low-risk assets take up about 70 percent of all their portfolios if banks' wealth management products are included. The ratio of cash and fixed-term deposits even take up 44.5 percent of assets of self-perceived aggressive investors, far exceeding mainstream global industry expectations.
While interest in properties — the core asset of Chinese households in the past — has been declining, financial products have not immediately caught up to fill in the gap, said Wu.
"This points to the transition in the Chinese financial sector when professional investment advisory institutions should step in and seek substantial development," he added.
Lisa Hunt, managing director for Charles Schwab, suggested that mutual fund products can be given a bigger play in China.
Inherently diversified, these products can lead to higher asset management activity in both passive and active investing styles, Hunt said.
Chen Peng, chairman of investment services provider Morningstar in China, said the size and coverage of long-term capital — such as pension funds — should be expanded. Its proportion directed to the capital market should also be increased, which is conducive to the performance of quality companies and investors' interests, Chen said.
Editor：Zhou Jinmiao
