The fortune of this lowest and broadest echelon of the Chinese nouveau riche – those with RMB500,000 ($73,000) in liquid assets – gives cause for remark. According to TNS, which surveyed 10 major Chinese cities, the number of households with liquid assets, excluding stocks, in excess of RMB500,000 fell in 2009. The worst hit was Beijing, where 6% of households began the year in this category of demi-millionaire, but only 3% ended it there. 

However, while this may go against the breakneck economic expansion shown by China in recent years, China’s wealthy middle class were not nearly as badly hit by the global financial crisis as their peers around the world. And with China’s wealth leaders looking to have already bounced back from the crisis, its senior office workers, sales executives and factory managers remain confident of soon following suit.  

A recent TNS index found that among those in the RMB500,000-plus category, confidence in personal investments and financial situation still scored 96 (out of 100).

perhaps this steadfastness should come as no great surprise. Initial reports estimate China’s GDP growth in 2009 to be 8.7% (IMF, March 2010). “The mood here on the ground is totally different to Europe or the US,” says Wilf Blackburn, CEO of Allianz China Life. “People here are optimistic that things are getting better. The only fear is of getting left behind as the good times grow.” 

Investment opportunities, on the other hand, still fail to engender the same degree of confidence as workers’ own potential. Faith in stock markets and real estate prices reached just 65 on the same TNS index of richer families.  

The zigzagging path of the Shanghai Stock Exchange’s (SSE) main equity index helps explain this lower score. From January 2006 to October 2007, the SSE 180 appreciated more than 440%.  

In the next 12 months it shed most of those gains, ending October 2008 just over 60% up from 2006’s starting point. To the beginning of this year, the index has redoubled its value. In contrast with economic growth, such roller-coaster ups and downs render the markets simply too volatile for the newly rich to stomach.  

For Zhang Hong, research director of the financial services sector at TNS, China’s middle class now displays greater cautiousness with their hard-earned capital. In 2008, almost 75% had said they were seeking new investment opportunities. Last year the number dropped to 62%. The TNS survey also found fewer people saying that stocks and fund-related activities were an important part of their daily life. Blackburn points out that the Chinese are not natural gamblers. Savings rates commonly exceed 50% of salary. Having seen losses from shares, the Chinese want greater capital protection.  

Preserving wealth while simultaneously still offering some potential upside is a matter for banks and insurers. Four in five TNS respondents expect banks and other financial services providers to develop new products with reasonable returns.  

A similar proportion expects the provision of more information and analysis regarding the financial crisis. But Blackburn is not sure that such wishes can be met straightaway. He believes that local banks already succeed in  offering superior service and attentiveness to their richest retail customers, but do not yet satisfy their needs in products. 

China’s nouveau riche are not in their late 50s or 60s; many are under 40, the beneficiaries of very recent globalization in manufacturing. As such, these people may not only have to care for mum and dad but grandma and grandpa, too, as well as the school fees of the aspirational next generation.  

Blackburn believes that insurers can play a role in developing life cover and old-age care that suits these families.  

“There is a desire among the heads of households to understand and minimize the risks they are bearing,” he says. “But providers have to be aware of the culture. Employing external daily care-givers for family elders, for example, is a foreign idea to the Chinese. Children traditionally perform this role.” 

So, what is the golden scenario? If the various agents in the market can work in harmony to deliver suitable protection products, with sensitivity to local mores, then, regardless of any future stock market gyrations, the number of households in China’s wealthy middle class might not experience such a severe drop again.

Published by PROJECT M in April 2010

(Photo: corbis/Inmagine Asia)