Sunday, May 1, 2011

Ying and Yang Wealth Grows in China

There are two trends going on in China at the present time. One trend, the lifting of the oppressive micro-planning that can be traced back to Communist leader Chairman Mao, is creating wealth and a higher standard of living for many across the country. Unfortunately, China's financial leaders hold Keynesian and mercantilist views about how an economy should be "managed". They've gone from micro-management to macro-management and appear to fail to understand that a laissez faire policy is as important when it comes to monetary policy as it is with regard to allowing businessmen to operate freely.
The money printing monetary policy of China's money printing policy has resulted in some of the wealth that is being created in China to be created in a distorted manner. When the inevitable downturn comes because of the money printing policies (and the downturn appears close) many of the newly wealthy will tragically lose their wealth.

With the above comment as a warning on how to look at the below data, here is an excerpt from the consulting firm Bain & Company study on the growth in the number of wealthy in China:

-The number of Chinese high net worth individuals (HNWIs) is projected to rise to 585,000 in 2011, nearly twice as many as in 2008, finds a new study of more than 2,500 HNWIs conducted by Bain & Company, in collaboration with China Merchants Bank. HNWIs are those with more than 10 million renminbi (RMB) in individual investable assets, or approximately $1,500,000 at current exchange rates. The study also finds that the fastest growth is coming from HNWIs with more than 100 million RMB in assets, or more than $15,000,000.

According to the study, the greatest concentration of Chinese HNWIs reside in Guangdong, Shanghai, Beijing, Zhejiang and Jiangsu, with more than 30,000 HNWIs living in each city/province. Among the 15 provinces with the number of HNWIs exceeding 10,000, Chinese HNWIs with the most investable assets per capita live in Shanghai (40 million RMB per capita), Beijing (38 million RMB) and Jiangsu (37 million RMB)-though the highest growth rates in the number of HNWIs (31 percent to 40 percent growth between 2008 and 2010) occur in central and western China, including Sichuan, Hunan and Hubei, and in the Bohai Bay basin, including Tianjin and Liaoning...

Other key findings from the study include:

Chinese HNWIs are dominated by business owners, but their share is down versus 2009. Business owners have been diversifying assets in order to accumulate wealth more rapidly in capital markets over the last few years

The vast majority of the HNWIs are first-generation-less than one percent of HNWIs are second generation successors with investment decision-making power.

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