Situated on China’s east coast, Qingdao is the largest city in Shandong province. Although it is not the provincial capital (which is neighbouring Jinan) it is administered at the sub-provincial level, and it has jurisdiction over six districts and four county-level cities.

As well as having some of China’s best beaches, Qingdao is also a major coastal port city and economic hub. As well as having a major naval base, the city has the world’s seventh-largest port by container throughput and is the gateway to northern China.

Qingdao is also known for its marine science and research, its Ocean University and its recreation sailing. The city hosted major water sports during the 2008 Olympic Games and has also hosted the Volvo Ocean Race and the Clipper Round The World Race.

In 2015 Qingdao entered the Forbes Top 10 Chinese Cities for Business for the first time, coming in ninth. It was given the title of China’s most liveable city in 2016 and is home to a number of major Chinese brands including white goods company Haier, electronics manufacturer Hisense, rolling stock manufacturer CRRC and Tsingtao Brewery.

Qingdao is China’s answer to Hollywood after Wanda Group announced it is creating the ‘Oriental Movie Metropolis’

Film industry

Qingdao has been put on the global map as China’s answer to Hollywood after Wanda Group announced it is spending $8.2 billion to create the Oriental Movie Metropolis in Qingdao. It will include the world’s largest film studio, 30 sound stages, a temperature-controlled underwater set and 221 acres of backlot as well as accommodation, restaurants and a school. All of this will be built on a plot of reclaimed land off the coast of the city by the end of the year. A-lister Matt Damon filmed part of Great Wall in the city and films including Godzilla 2 and Pacific Rim 2 are planned to be filmed there soon.

Qingdao is fast becoming the centre of China’s film industry

Wealth management industry

Qingdao was designated as China’s national-level pilot zone for wealth management reform in 2014. The city has hosted a number of wealth management forums and seminars ever since. British organisation the Chartered Institute for Securities and Investment (CISI) recently launched their examination programmes in Qingdao and the city’s financial sector is seeing strong growth.

Key national strategies

In 2014 the State Council approved Qingdao West Coast New Area as the ninth state level new economic zone in China. With aims to promote trade links with Belt and Road countries, 52 projects had been agreed by 2015 with an overall investment of RMB 300 billion. The projects covered sectors including high-end equipment manufacturing, new energy, new materials, cross-border ecommerce, healthcare, large-scale urban commercial centres, cultural tourism, supply chain logistics and key infrastructure projects – half of those projects have a marine focus.

Shandong Peninsula’s Blue Economic Zone was initiated as a national strategy in 2011, with an aim to boost ocean related industries. Qingdao has gathered major R&D centres and created an industrial hub for marine science and technology to support growth of Qingdao’s blue economy.

Qingdao facts

• As of 2014, Qingdao had a population of 9 million with an urban population of 6.2 million
• The total area under Qingdao’s administration is 11,282 square kilometres

Key Industries

• Electronics
• Petrochemicals
• Automobiles
• Machinery
• Metallurgy
• Building materials
• Biopharmaceuticals
• Textiles and garments
• Food and beverage processing

Contacts in Qingdao

CBBC Chief Representative
Harry Jiang
E: Harry.jiang@cbbc.org.cn
T: 0086 532 8386 9772
A2603, Yihe International, 10 Xianggang Zhong Road, Qingdao 266071

The post Qingdao: a major coastal port city and economic hub appeared first on Focus - China Britain Business Council.

Last month Moody’s downgraded China’s rating for the first time in nearly three decades from A1 to Aa3. The reason cited was the country’s rapidly growing debt that has formed due to major bank loans and government subsidies that has helped China’s growth to rumble along at similar rates to previous years. Stable growth is a key priority of Beijing.

But another concern is the amount of money tied up in China’s Wealth Management Products (WMPs). At the end of March this year, outstanding products issued by banks stood at RMB 29.1 trillion ($4.2 trillion), according to the China Banking Regulatory Commission (CBRC) – triple that of three years ago.

Asset-management products, including those held off balance sheets, totalled RMB 60 trillion ($8.7 trillion) as of last year – more than three-quarters of China’s 2017 GDP.

Tech means future and future means higher growth

What are WMPs?

Wealth Management Products are usually held for a short duration – between one and six months – and guarantee much higher returns than a savings account.

They have become popular in China with private investors who have surplus cash because of their high yield. Most WMPs offer a minimum of an 8 per cent return compared to the one-year deposit rate of 1.5 per cent offered by savings banks.

It is not just private investors who are pumping money into the WMPs; companies are doing the same.  According to data from Wind Financial Information, $110 billion of cash was put into financial products by corporates last year. According to the Financial Times, companies choosing to invest in short-term investments rather than building their businesses could be a sign of economic slowdown or a lack of confidence in the economy.

Compared to other countries, the range and diversity of WMPs in China is very limited. Most WMPs are issued by banks and are linked to China’s stock market or property and construction industry.

The property and construction markets have continued to grow and yield good results, partly because they have benefited from government support and stimulus spending.

Also state-run banks (and, therefore, ultimately the government) have fostered a belief that they will bail out WMP clients if the returns aren’t as expected.

For example, a high-yield product called Credit Equals Gold No 1 was distributed through China’s biggest lender, the Industrial and Commercial Bank of China (ICBC). It invested in a coal mine that collapsed in 2012. After initially declining to bail out the product, ICBC reversed course when investors protested outside a Shanghai branch of the bank. Investors now believe that the government, via the banks, will stop WMPs from crashing.

These bailouts help create more bad debt but is probably necessary to stop any panic sale that could lead to a liquidity crunch. Further compounding the threat is that WMPs often invest in each other, leading to a potential chain reaction in the event of a default. The risk is all with the banks and not with the clients.

Bringing in regulation

The boom in WMPs is now slowing as regulators scrutinise these products. The chairman of the CBRC, Guo Shuqing, said that regulators, including the central bank, will draft rules to plug loopholes in regulations for cross-market financial products such as WMPs.

Future products, say regulators, must have clear disclaimers, stating that products can go down as well as up, and financial institutions will be required to set aside 10 per cent of their management fees as reserves for potential losses. Although contingence funds send out mixed messages, giving customers further confidence that their money is safe no matter what.

Regulators understand that they are under pressure to find a solution to this problem and one British organisation is helping with this process. The Chartered Institute for Securities & Investment (CISI) will be launching an examination programme in Qingdao this month. Financial services professionals will be able to take the CISI examinations, which should help to lift the standard of the banks and service providers.

The Asset Management Association of China (AMAC) is thought to have over 2,000 WMP suppliers on their books but the increase in regulations should help weed out the loss-leaders and enable a number of industry leaders to rise up to dominate the market.

Established WMP suppliers Haitong Securities and GF Fund Management are likely to be among them. These two companies have also set up in the UK, looking for more products to offer outside of China.

The limited WMPs offerings in China mean that investors are increasingly looking abroad to find products – and the UK is a prime target.

We have witnessed a surge in property purchases since Brexit due to the instant 20 per cent drop in the pound

Destination UK

“The UK is also a target for Chinese [high net worth] clients who are looking to diversify their portfolios. It is regarded as having a very stable financial environment,” says Juliet Zhou, CBBC’s financial services lead.

“The UK has a robust regulatory system, and there are more products to choose from,” she says. “The UK offers long-term, steady returns for investors.”

Chinese investors are also looking to increase their foreign asset holdings. On average, Chinese investors hold only 4.8 per cent of their total investable funds in foreign assets compared with 39.8 per cent in the UK.

Chinese banks with branches in the UK do have wealth management divisions ready to launch but complex financial regulations on moving funds from China, and a limited client base means that they have yet to launch.

Last year, Chinese wealth manager Noah Holdings Ltd became the first Chinese wealth management company to obtain a license to offer trusts to wealthy Chinese investors from the offshore island of Jersey. This will help them diversify both their currency holdings and the investment portfolios.

“We have talked to our clients who said global asset allocation was a must for them and the most important reason was that they hoped to diversify risks,” says Kenny Lam, group president at Noah.

Diversifying risk and adding variety to their portfolio also makes the UK a target for Chinese investors. “Britain has a lot of attractive tech companies, whether it’s bio-tech, fintech or other advanced engineering types of companies and they are amongst the favourites for Chinese investors” says CBBC’s Zhou. “The UK also has a good environment for start-ups, and British wealth management companies have a lot of experience working together with them.”

“Britain is also leading the way on block-chain technology, which will be the next gold rush. Tech means future and future means higher-growth,” she says.

As well as tech investments, UK property is another target area for Chinese high net worth individuals.

Zhong Lun Law Firm is one of the three largest international Chinese law firms that helps both British businesses looking to enter the Chinese market and Chinese individuals and companies looking to invest in the UK.

“We have witnessed a surge in property purchases since Brexit due to the instant 20 per cent drop in the pound,” says Xue Haibin Managing Partner at the London office of Zhong Lun. In the week before this interview, Xue says Zhong Lun exchanged on 60 property transactions.

Chinese investors chose to invest in the relative safety of UK government and company bonds

Individuals are only allowed to take out $50,000 per year from China. However, according to Xue, most investors have money overseas already from trading and international business transactions. Those that don’t, can save up or ask friends to use their allowance.

For those able to invest £2 million, they are eligible for a Tier 1 (investor) Visa, which entitles them to a residency permit.

Chinese investors have experienced long periods of high returns for relatively low risk products, something that the low interest rate environment of the UK will not provide for them. However, the highly regulated and transparent market combined with the ability to hold foreign assets is still very attractive to them.

Nigel Olliff, investment manager at Quilter Cheviot Investment Management, manages around 200 Tier 1 Visa investment portfolios on behalf of Chinese clients who have recently moved to the UK.

He explains that many Chinese investors chose to invest in the relative safety of UK government and company bonds, which are also acceptable investments for Tier 1 Visa applicants.

“Given UK government bonds have not been doing particularly well over the past year, clients have expressed greater interest in a more diversified portfolio, and have started investing in a small way in equities for capital growth and income,” he explains. “As they have become more comfortable with our style of management, we have seen them adding more risk and investing in company shares.”

Whereas the Chinese wealth management industry is very much driven by products, UK companies like Quilter Cheviot focus on providing a more tailored portfolio service.

“The most popular asset class for Chinese investors moving to the UK is direct property and, for the wealthier investors, trophy assets such as golf courses, large properties and commercial real estate remain attractive,” says Olliff. “Business acquisitions are still happening, but mainly related to client’s business in China, mostly industry and technology driven. Smaller scale private equity and start-up incubator investments are quite popular as well.”

The most popular asset class for Chinese investors moving to the UK is direct property and, for the wealthier investors, trophy assets such as golf courses

The financial bridges

Chinese investors will soon be able to invest directly on to the London stock exchange. Following the successful launch in 2014 of the Shanghai-Hong Kong stock connect, chancellor Philip Hammond has given the green light to a Shanghai-London stock connect. This will allow Chinese investors to trade London-listed stock after the London market closes.

Also this year has seen the launch of the UK-China “FinTech Bridge”, aimed at strengthening regulatory cooperation and boosting reciprocal market access for both UK and Chinese FinTech start-ups.

Andrew Bailey, chief executive of the Financial Conduct Authority says the bridge “will allow us to share information about financial services innovations in our respective markets, including emerging trends and regulatory issues.

“We hope that by strengthening links between the regulators, barriers to entry will be reduced and innovation encouraged in both countries’ financial services sectors,” he says.

As China eases its restrictions and implements regulations to raise its financial services sector to international standards, it will lead to a lot more opportunities to work with and in Britain.

“We will certainly see more collaborations between the UK and China,” says CBBC’s Zhou. The easiest way for Chinese companies to grow, she says, is to acquire British asset management companies rather than trying to grow organically. In April, Chinese firm Hywin Financial Holding Group did acquire UK wealth manager Azure Wealth.

One of the key messages for Chinese investors though will be that investments in the UK are stable, secure and liquid. The sky-high returns recently found in China aren’t as likely and British wealth management companies, the banks and the government won’t be taking that risk on for them. But diversifying their holdings, expanding their foreign assets and investing in innovation in a secure regulated environment is clearly appealing to many.

The post China’s wealth management industry appeared first on Focus - China Britain Business Council.

Stepping for the first time into the China market is not easy. A false start can lead to years of costly mistakes and even full withdrawal from the country. But with strategic planning, effective networking and trust-building, companies can make a successful entry, as seen in a recent collaboration between CBBC and the Chartered Institute for Securities and Investment (CISI).

The institute is the leading professional body for securities, investment, wealth and financial planning professionals. That means that if you want to work in financial services, then more than likely you’ll be taking CISI’s exams at some point.

Since the institute received its royal charter 35 years ago, more than 40,000 members have become CISI qualified. They offer exams in more than 60 countries around the world. And now, with the help of CBBC, they are about to launch in China.

Yet this current foray into China isn’t CISI’s first. A decade ago, it launched an office in Shanghai in a bid to provide learning and qualifications for Chinese finance professionals. However, a lack of governmental support and complex regulations meant that the organisation struggled to thrive and in 2011 the Shanghai office was closed.

But after that initial false start, CISI is now leading the way thanks to a fortuitous encounter at a roundtable event for the Lord Mayor of London.

Sir Alan Yarrow Lord Mayor

Hayley Brown, senior international manager at CISI, found herself sitting next to Juliet Zhou, head of financial services for CBBC. Juliet knew of a company in Qingdao who were actively looking to find a wealth management professional education provider.

CISI representatives attended a number of delegations and invited representatives from the Qingdao municipal government to their headquarters in London. After a number of trips between Qingdao and London, CISI will now be opening their new China office this month in Qingdao.

The Qingdao municipal government have been proactive in working with CISI in a bid to attain their goal for the region

“Juliet helped guide us on strategy, and the importance of having a strong relationship with a Chinese partner,” explains Brown. “We have since joined as members of CBBC and they have helped us with marketing ideas and connecting us with the local office in Qingdao. We have also taken advantage of their ‘Doing Business In China’ cultural awareness course, which was extremely valuable. CBBC are very supportive and responsive and want us to do well,” she says.

Qingdao, a city on China’s east coast, has aspirations to become the centre of wealth management in China. The Qingdao municipal government have been proactive in working with CISI in a bid to attain their goal for the region, offering them some office space. Introductions from the CBBC, support from the British Embassy and the City of London have helped to expedite the process.

Simon Culhane, Chief Executive of the Chartered Institute for Securities and Investment photographed at the office in the City of London. Photo by Michael Walter/Troika

The municipal government then went on to introduce CISI to the Shanghai University of Finance and Economics (SUFE), who wanted to establish a wealth management qualification in Qingdao. When SUFE saw what CISI had to offer they were happy to partner. CISI will provide the exams, and as the local partner, SUFE will ensure that the necessary face-to-face training is completed and that the testing facilities are of the correct standard. They will also help to promote the exams, ensuring that CISI’s exams are accredited through a Chinese university.

This affiliation with both the Qingdao government and an academic institute has enabled CISI to get the permissions needed.

“In this tri-part collaboration we want to see Qingdao become a financial powerhouse, and hope that our qualifications will help in this endeavour,” says Brown. “We would like to build awareness of CISI in China, as we will have a portfolio of Mandarin products and services.”

The wealth management market is still relatively immature in China but there are a growing number of students and people working in finance who are learning how to move from retail banking to managing wealth and private banking.

“Our qualifications can help successful candidates to improve their contribution to their employers, helping them to hit the ground running and therefore make an immediate impact to a business,” says Brown.

CISI is expecting that 80 per cent of its customers will be currently employed in banking or from a financial background with the remainder being made up of students from institutes like SUFE.

Large global banks in China use CISI qualifications and CISI is hoping to widen its audience in Qingdao to include local banks and wealth management institutions.

“The first qualification we are launching in Qingdao, the International Certificate in Wealth and Investment Management (ICWIM), is seen as an industry benchmark, placed at level 3 on the qualifications registrations framework in the UK,” says Brown.

With a target of 150 students in year one rising to 500 the following year, their goal is then to introduce CISI qualifications to other regions in China.

Simon Culhane, Chartered FCSI and CISI CEO, said: “Learning is for life and professional qualifications offer an opportunity to invest in yourself and your future. I am confident that with skilled personnel and the collaboration between CISI, SUFE and the Municipal Government we will begin to see Qingdao rise up the global financial centres index.”

Timeline of events

• June 2015: CISI invited to a Qingdao delegation lunch organised by the Foreign Office and CBBC
• 2015: CISI meeting with Mr Bai, director-general, Qingdao Financial Services Affairs Office, in London
• January 2016: CISI consultant for China visited Qingdao in a return delegation
• March 2016: Mr Xia from Qingdao’s municipal government visited CISI headquarters in London
• August 2016: CISI visit to Qingdao and municipal government appointing SUFE to be partner institute
• September 2016: Direct communication with SUFE begins
• January & May 2017: CISI visit Qingdao to prepare for the launch
• June 2017: Programme due to be launched

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