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The perils of managing China's private riches

Inkstone logo Inkstone 29/10/2018 Chad Bray
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A Singapore-based wealth manager catering to China's ultra-rich has been requested by Chinese officials to stay in the country, triggering concerns about doing business in the increasingly affluent but risky market.

The consultancy McKinsey estimates about $6 trillion in assets could become available in China for investment by 2022, as the market opens further, making it a highly lucrative market for wealth managers.

The country now has 3.5 million millionaires and more residents with wealth above $50 million than any country in the world, expect for the US.

Over the weekend, a Singapore-based banker working for Swiss bank UBS's wealth management business was asked to delay her trip back from Beijing to meet Chinese officials.

She is still in Beijing as of Tuesday morning.

She has not been detained and has been allowed to keep her passport, according to the source.

No reason has been given as to why the authorities want to question the woman, who has not been charged with any wrongdoing, or named publicly by the authorities and the bank, according to a source.

But the incident has prompted other international banks like Citibank, Standard Chartered, JP Morgan and BNP Paribas to ask their private banking staff to postpone or reconsider their trips to China, according to Reuters, which quoted sources from these financial institutions.

UBS had asked staff working for its wealth management arm to delay trips to China in the interim, but this advisory was not extended to other parts of the bank, the person said.

On Tuesday, UBS said that the bank was allowing "all our staff to travel freely in and out of the country and it is business as usual for us in China," adding that it remains fully committed to further developing its business in China.

This is not the first time a foreign wealth manager has found themselves facing questioning by Chinese authorities.

Six years ago, a Standard Chartered private banker in Shanghai was detained by Chinese authorities as part of an inquiry into a client who officials said had fled the country with millions of dollars.

The banker was eventually freed in May 2012 after being held for several months and was not charged with any wrongdoing.

China's private banking industry is risky but full of potential. McKinsey said in a report this month that private banks now have their biggest opportunity to serve Chinese investors through a so-called onshore presence, which essentially means keeping those financial investments in China, rather than abroad.

At the moment, currency controls make it difficult for mainland Chinese investors to move money outside the country, and to invest in certain types of securities products, such as private equity funds.

Wealth managers also face restrictions on the promotion of offshore products directly to individuals in China. There is a $50,000 annual limit on foreign exchange purchases by Chinese individuals, as well as restrictions on money withdrawn overseas from Chinese bank accounts and tighter reporting requirements.

Since 2012, under President Xi Jinping, there's been an ongoing anti-corruption campaign. More recently, Chinese authorities have also been cracking down on tax evasion in the country's booming entertainment industry.

Earlier this month, China's best-paid actress Fan Bingbing issued a groveling apology and vowed to pay a tax bill of $130 million.

This story originally appeared on Inkstone, a daily multimedia digest of China-focused news and features. Like what you see? Sign up for our newsletter, download our app, or follow us on Twitter and Facebook.

Copyright (c) 2018. South China Morning Post Publishers Ltd. All rights reserved.

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