China's new economy is expanding rapidly despite the tightening regulatory environment, with its market size expected to reach 33 trillion yuan ( US$5.11 trillion ) by 2025. As the hub of many unicorn companies, new economy sectors are generating a lot of wealth and presenting great opportunities for the private banking industry.

Chinese regulators have recently stepped up efforts to rein in the technology sector, but analysts believe the rise of new economy sectors will be hard to restrain and will continue to be an engine for wealth creation.

China’s new economy covers companies with disruptive technologies or business models. Estimates placed its market size at 17 trillion yuan in 2020, and it is expected to double to 33 trillion yuan by 2025. 

New economy stars such as Kuaishou, XPeng Motors and Waterdrop have launched successful initial public offerings ( IPOs ), thereby producing a new generation of high net worth individuals ( HNWI ). And despite their young age, the founders and senior executives of these new economy unicorns have a strong demand for family-office services. 

Wealth management

These HNWIs tend to be quite busy with their work, according to private bankers servicing such clients. And as such, family offices that offer wealth management services while addressing their personal and business needs are becoming popular.

Most of these clients are aged below 35 or in their late 40s and 50s. According to a recent report by Huiyu Global Family Office Think Tank and Fargo Wealth, 38.89% of the members of 66 new-wealth families surveyed are aged 25-34 while 50% of them are 45-54. 

With most of their assets sitting in China and Hong Kong, 30% of them have opened multiple private banking accounts overseas, according to the report. They have a stronger interest in impact investing than HNWIs from traditional industries. 

These new-wealth families are reshaping China’s private banking industry. They tend to manage their wealth in the same mindset that they operate their enterprises. Given that many of them are coming from the tech sector and at a young age, they have a strong demand for tech-enabled solutions. 

Strong competition

This offers huge opportunities in the family office business. On top of the players who have been in this business for years such as state-owned banks and some joint-stock commercial banks, newcomers including securities companies are setting up private banking business subsidiaries to capture market shares. Securities firms can provide more customized services and thus present a strong competition in the family office space, according to a senior executive from a Chinese bank. 

Industrial Securities has recently launched a private banking business in Shanghai. Other players such as Guotai Junan Securities, Guangfa Securities, Haitong Securities and Everbright Securities have jumped into the fray even earlier. 

According to banking sources, the competition at the moment has more positive than negative effects. The main strategy of private banks is still to develop new clients rather than taking away business from each other. 

According to market estimation, there are more than two million families in China with investable assets of over US$1 million, and only about half of them are serviced by professional private banks. As such, the Chinese family office business still presents vast opportunities.