Cochin Herald

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Beijing steps up curbs, offshore investments under scrutiny

News of a foreign wealth manager being denied exit from China last week is raising concerns for global private banks, as they seek to tap trillions of dollars of wealth offshore in the face of Beijing’s growing curbs on overseas investments and outflows.

The banker, a Singapore-based member of UBS wealth management business, was prevented from leaving Beijing and asked to meet local officials this week. Her identity is not known yet.

Although the purpose of the meeting is not publicly known, the news still led several banks including UBS, Citigroup, JPMorgan, Standard Chartered and BNP Paribas to ask private bankers to reconsider travel to China, people familiar with the matter said on Monday.

The Swiss bank on Tuesday rescinded its travel guidance and said in a statement it was business as usual in China. A UBS spokesman in Hong Kong declined to offer any further comment when contacted.

The uncertainty around the UBS banker’s delayed departure comes at a tricky time for foreign investors in China as Beijing steps up curbs and increases scrutiny on offshore investments and outflows amid a weakening economy and currency.

And as authorities continue a sweeping campaign to root out graft, some bankers are beginning to get nervous about pursuing arguably one of the biggest opportunity worldwide in the wealth management business.

The UBS snag could prompt clients as well as their offshore advisers to be more cautious in making new investments, four senior private banking sources said.

“The immediate impact will be that everyone will be on pause for some time and try to figure out what all these means for China offshore wealth management business,” said a wealth management executive at a large European bank.

“All the firms have their rules of engagement with clients when you are handling offshore wealth. The question is if those rules need to be revisited and you have to reinforce that,” he said, declining to be named due to the sensitivity of the matter.

UBS is the largest wealth manager operating in Asia, with $383 billion of assets under management, according to Asian Private Banker magazine, ahead of Citi, Credit Suisse, HSBC and Julius Baer.

Foreign private banks have invested heavily in courting the rich in China – home to the world’s fastest-growing pool of wealth and the second-largest group of billionaires in the world, after the United States.

Regulations and restrictions on business ownership and products have so far deterred most banks from having an onshore presence. An offshore business, mainly managed out of their Hong Kong and Singapore hubs, remains the preferred route.

Offshore push

While offshore wealth managers often make “social visits” to clients in their home countries, most nations including China don’t allow them to solicit business or sell overseas investment instruments in the onshore market.

The number of rich – those with at least $1 million to invest – rose by 12% last year in Asia Pacific, led by China. The rate of growth was the fastest in the world, according to consultant CapGemini.

The investible assets of rich in China is estimated to have reached $8.4 trillion last year, and CepGemini says 45.5% of the onshore wealth were held outside the home market as of the second quarter of last year.

A high degree of secrecy means there are no credible data on the total assets that Chinese individuals hold offshore.

Offshore private banks are at liberty to help clients – including those from China – manage wealth already outside the mainland via legal means such as through company stock listings, asset sales or the creation of trust companies.

But UBS’s recent hiccup comes as bankers and lawyers expect China to get more stringent about the offshoring of wealth. They fear further curbs as Beijing grapples with a weaker currency, and gets access to taxpayer data by sharing financial information with other countries.

Authorities now “may be gradually increasing supervision of offshore assets,” said Song Xu, a partner at Shanghai office of law firm Zhong Yin.

The yuan has fallen over 6 percent so far this year, hit by a Sino-U.S. trade dispute, and unobtrusively China has been moving to rein in currency outflows.

Moreover, under new global standards aimed at cracking down on tax cheats, China this year began a two-way exchange of information about bank accounts with other nations, which consultants say will give the authorities more visibility about the offshore holdings of its citizens.

“The capital control measures in China are getting tighter, not looser. And the ongoing crackdown on corruption and deleveraging has also created new barriers for offshore wealth management,” said a Beijing-based boutique wealth manager.

“While Chinese clients are still very keen to diversify their assets, there will be a lot more caution on all sides.”


Cochin Herald

All stories by: Cochin Herald