CHASING THE CHINESE DREAM - ASPIRATIONS AND DILEMMAS OF CHINA'S NEW AFFLUENT CONSUMER CLASS - Oliver Wyman
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CHASING THE CHINESE DREAM ASPIRATIONS AND DILEMMAS OF CHINA’S NEW AFFLUENT CONSUMER CLASS AUTHORS Bernhard Kotanko, Partner Jacques Penhirin, Partner Cliff Sheng, Partner Pedro Yip, Principal Jasper Yip, Engagement Manager
EXECUTIVE SUMMARY
The Chinese mass affluent class is achieving and dilemmas means that businesses
a new state of mind. require a deeper understanding of
Chinese motivations to succeed in
Given China’s lucrative demographics, capturing opportunities.
the mass affluent class (individuals with
RMB 650,000 to 6 million investable To this end, we conducted a survey with
assets) will be the driving force in shaping 1,000 Chinese mass affluent consumers.
the Chinese consumer’s ‘New Normal’. This report shares our perspectives on the
A younger, more tech-savvy, and evolution and implications for businesses:
free-spending cohort than its Western
Chapter 1 highlights the shift in behaviours
counterparts, China’s mass affluent
towards wealth and lifestyle. Unlike ever
population is expected to more than double
before, the Chinese are growing comfortable
from 15 million in 2015 to 33 million in
with their finances and seeking to spend
2020. Wealth is accumulating rapidly with
more and invest more, rather than to
investable assets projected to increase from
harbour savings. Money is going towards
RMB 21 trillion in 2015 to RMB 45 trillion in
living better, not just having more.
2020. Personal consumption is expected to
experience double digit growth, eventually Chapter 2 contrasts the optimism towards
accounting for over three-quarters of China’s several dilemmas faced by the Chinese
total consumption by 2020. mass affluent class as they strive to
upgrade their quality of life. As Chinese
This paper aims to reveal the evolving consumers reach for meaningful lifestyles
aspirations of the Chinese mass affluent and experiences, the underlying foundation
class, and to contrast that with the of economic and social security is shaky.
limitations and dilemmas they faced. Discontent over cost of living is widespread
While pursuing higher values beyond and profound. Quality providers of wealth
material goods, they are still grappling with management and basic welfare are still
basic needs. The paradox of aspirations largely lagging.
ASPIRATIONS DILEMMAS
Savings It’s not just about savings Rising incomes but perceived wealth
is not necessarily increasing
•• Savings is falling and more money
is being allocated to investments •• Insecurities about the future
and consumption means savings is still a safe haven
and unlikely to fall to western levels
Investments Investor appetites are diversifying Desire to broaden investing
but untrusting of professional
•• Investors are more rational
money management
and demand more balanced,
diversified asset allocation •• Without professional wealth
management, wealth is mostly
illiquid and consumption power is
in deadlock
Consumption Rise of the experiential consumer Striving to ‘live well’ but still uneasy
about basic welfare
•• Consumers are seeking for
meaningful experiences to •• There is growing demand for
elevate lifestyles upgraded options to social goods
to improve well-being
Copyright © 2017 Oliver Wyman i
Chapter 3 explains the opportunities As the tastes of Chinese consumers and
under the new paradigms of the Chinese investors mature, companies need to
consumer and investor. We summarise be more creative and thoughtful in their
several new themes that shape the way approach. Opportunities for businesses
forward for consumer businesses and are abundant, but no longer ubiquitous.
wealth managers to succeed in a new era Uncovering them requires closely following
of consuming and investing. the changing desires of the new Chinese
mass affluent class.
THEMES FOR WEALTH MANAGERS TACTICS TO DEPLOY
Strengthen product supply Enhanced product access and information,
proprietary products
Innovate with product design Fund-of-funds, ETFs
Sidestep trust issues Robo-advisory
THEMES FOR CONSUMER BUSINESSES TACTICS TO DEPLOY
De-commoditise products Personalization, emotional marketing
Align distribution strategy Omnichannel integration, flagship stores, global
Chinese strategy
Shift to services Adjacent services, on-demand access
Copyright © 2017 Oliver Wyman ii
Copyright © 2017 Oliver Wyman 1
1. WHAT’S CHANGING: REACHING HIGHER
The evolution of China’s consumers However, with rising levels of affluence,
manifests itself in behaviours and attitudes there is good indication that the Chinese
around wealth and lifestyle. Our research mass affluent class is more assured about
shows that this new consumer class is the security of personal finances and
forging new patterns of saving, investing, willing to look beyond savings. Despite
and consuming, to support a more the slowing growth of disposable income,
sophisticated and urbanized way of life. they are optimistic about the future, with
58 percent of respondents perceiving that
disposable income would increase over
IT’S NOT JUST the next 12 months. For those who can
ABOUT SAVINGS afford it, the preference is overwhelming
to spend more rather than save more
China has long been seen as a savings-
(Exhibit 2). Our survey suggests that about
rich economy. The Chinese savings
two-thirds of incremental income would
rate, at 39 percent, is double that of
be funnelled into consumption, leaving
Singapore and almost 8 times that of the
a combined savings/investment ratio of
U.S. (Exhibit 1). Share of savings actually
about 30 percent which is materially lower
increased as household incomes rose. This
than the average Chinese savings rate of
phenomenon is not all surprising if savings
39 percent.
can be thought of as ‘purchasing peace of
mind for a what-if scenario’ – the more you
make, the more you can purchase.
Exhibit 1: Household saving ratio by country/city (% of household disposable income, 2015)1
China 39%
Singapore 19%
Taiwan 18%
South Korea 7%
US 5%
EU 4%
Japan -1%
Source: OECD, Oxford Economics, Oliver Wyman analysis
1. OECD, Oxford Economics, Oliver Wyman analysis
Copyright © 2017 Oliver Wyman 2As financial needs evolve, they are also
saving in different ways. Investment Traditional savings is gradually shrinking to make
products are increasingly favoured over way for growing preferences towards more investing
traditional savings. Half of respondents and consumption.
have already increased allocation of income
towards financial products and/or Chinese
stocks, the top two categories, followed by
insurance top-up (Exhibit 3). Respondents
intend to allocate more incremental income
to investments than savings (Exhibit 2).
Exhibit 2: Allocation of additional income of RMB 10,000/month, 2016
% INCOME ALLOCATION % INCOME ALLOCATION OF INVESTMENT
10% Savings (bank, cash) Financial products/funds 7%
Chinese stocks/shares 4%
Invest in own business 2%
Housing in China 2%
20% Investment Insurance top-up 2%
Buying bonds 2%
Overseas investment 1%
Housing overseas 0%
% INCOME ALLOCATION OF CONSUMPTION
Holidays within China 14%
67% Consumption Holidays overseas 10%
Food and drink 10%
Personal items 8%
Entertainment 6%
Children’s education 4%
Household items 4%
Cars or transport 4%
Healthcare/medical 4%
Gifts to family/friends 3%
3% Others (e.g. debt)
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
Exhibit 3: Increase in investments across asset categories (% yes, 2016)
Financial products/funds 55%
Invest in Chinese stocks/shares 52%
Housing (e.g. Larger house) 38%
Insurance top-up 31%
Invest in your own business/friend’s business 31%
Buying bonds 24%
Overseas investment (Stocks/shares) 13%
Housing in overseas 9%
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
Copyright © 2017 Oliver Wyman 3INVESTOR APPETITES also planning to do so more conservatively
ARE DIVERSIFYING (Exhibit 4). This preference is even stronger
for those that are most confident about their
Investor mentalities are changing. The investing capabilities.
mindset of the past has been very short-
The mass affluent class has dabbled across
sighted, and the Chinese tended to trade
different investment vehicles and hold a
much more frequently than global peers,
range of assets, with Chinese equities and
and some even viewed trading as a hobby.2
Having suffered vastly from stock market bank wealth management products still
volatility in recent years, investment being the most common (Exhibit 5). They
behaviour is tempering and there are are open to experimenting with financial
increasing doubts over the chase of innovations and have taken part in new
self-driven absolute returns, leading to Fintech vehicles such as online money
more appetite for balanced asset allocation market funds and peer-to-peer products.
and risk diversification. While our research Development of financial markets is seeing
shows that there is greater near-term new product options and investors are
preference to invest more, the Chinese are looking to rebalance portfolios.
Exhibit 4: Investment preferences in the next 12 months (% respondents, 2016)
Making more Investing more Increasing short-
investments conservatively term investment
Increase Make more
18% 31% 50%
cash savings investments
Excellent 66% 48% 42%
Invest more Invest more Very good 61% 36% 43%
28% 34% 38%
aggressively conservatively
Quite good 53% 31% 34%
Increase long- Increase short-
33% 29% 38% Neutral 38% 41% 38%
term investment term investment
Self evaluation of
Neutral investment knowledge
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
Exhibit 5: Penetration of different types of investment (% respondents, 2016)
Bank savings 83%
Bank wealth Management products 64%
China stocks and shares 58%
Life insurance 51%
Bonds or fixed deposit savings 37%
Property that you lived in 37%
Gold/Silver commodities 35%
Mutual funds/other wealth management products 34%
Investment in peer-to-peer lending 27%
Property for investment only 23%
Investments in businesses 15%
Overseas savings or investments 8%
Others 4%
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
2. State Street Center of Applied Research Study
Copyright © 2017 Oliver Wyman 4Wealth management has emerged as a
professional service, but unlike mature Investment styles are becoming more rational and
markets the model is product-centric practical. Investors seek balanced asset allocation and
rather than advisory-centric. Online desire information, breadth of choice, product access, and
platforms are successfully catering to mass convenience at low costs.
affluent appetites by providing breadth of
product access across asset classes and
facilitating choices, while exploiting low- We observe tremendous potential in
cost distribution and efficient processing. categories associated with experiential
These platforms leverage big data to analyse events. New niches have sprung up and
investor preferences and risk appetites whole industries are evolving to ride the
to deploy targeted sales and marketing. trend. For example, the dining sector
For instance, Lufax and Ant Financial offer reached an income of RMB 2,910.5 billion
insurance, mutual funds, and quasi-fixed during the first ten months of 2016,
income products, and aspire to become representing a 10.9 percent year-on-year
“investing supermarkets”. The convenience increase and the first time with double-
of 24/7 access, fast transactions, and digit growth in 3 years4. Accelerated
diversified product selection available at low growth in dining is a phenomenon fuelled
product commissions fees are particularly by rising middle class and mass affluent
suited to investor preferences. spending power, ironically while high-end
restaurants have been troubled following
the anti-corruption campaign. The dining
RISE OF THE
industry is seeing emergence of more
EXPERIENTIAL CONSUMER diversified restaurant options, demand for
Compared to many western societies, ambiance and service personalization, and
the Chinese wallet is significantly more continued emphasis on food safety.
weighted towards spending on food and
clothing3. However, the last decades of The boom in travel and tourism is
rapid modernization have enabled Chinese another example of consumers seeking
consumers to achieve a degree of material meaningful experiences. Our recent
comfort, and now interests are shifting survey supports that Chinese travel
to higher needs for self-fulfillment. They growth will persist – amongst all
are becoming more fun-loving and less categories consumers are most willing to
infatuated with having more. Amongst spend additional income on travel, both
our respondents, about 60 percent of domestic and outbound (Exhibit 2). The
respondents have increased spending Chinese are now more mobile than ever,
on entertainment (sports, cinema, etc.) with improved travel infrastructure, new
and domestic vacations, on par with food airport openings and development of
and personal items. Furthermore, about high speed rail, while coupled with rising
30 percent of additional income would be incomes. The destinations are highly
allocated to entertainment and holidays, varied, seeing growth across a range
exceeding the incremental spending on including ‘red tourism’, historic communist
personal and household goods. sites, nature sites, and theme parks.
3. Euromonitor, CEIC, Goldman Sachs Global Investment Research
4. National Bureau of Statistics of the Peoples Republic of China
Copyright © 2017 Oliver Wyman 5In our report “The Changing Face of the
Chinese Traveller”, we discussed that Consumers aren’t just buying more, they are buying
outbound travel is now more experience- differently as needs elevate. They are seeking to
driven than material-driven. While upgrade lifestyles and willing to spend more on
nearly all travellers would shop during meaningful experiences.
their trip, the predominant purpose for
travel is sightseeing, and recreation or
entertainment follows closely behind In our report “Mall or Nothing: Boom and
shopping as the third reason for travel. Bust”, we discuss the trend of new malls
dedicating more space for entertainment
Alongside the rapid growth of online and services over shopping, such as
channels, offline channels are positioned cinemas, dining, spas, hair salons,
to provide consumers with sought-after extended hours, etc. (Exhibit 6). Creating
physical experiences. The shift toward a one-stop destination and providing an
experiences in particular is demonstrated alluring experience gives consumers a
by the new model of Chinese shopping mall. reason to dwell in shopping malls.
Exhibit 6: Shopping mall tenant mix in select Shanghai malls (# brands, %)
75 127 70 119
1% 1%
8%
14%
24% 27%
15%
28% 47%
36%
39%
Grocery Retail
Service
47%
41% 39%
33% Food & Beverage
Fashion/
Specialists Retail
Laya Plaza Fanhua Centre 96 Plaza Thumb Plaza
NEWER
Source: Oliver Wyman analysis
Copyright © 2017 Oliver Wyman 6Copyright © 2017 Oliver Wyman 7
2. WHAT’S MISSING: CHALLENGINGS WITH
MEETING THE DEMAND
Amidst the positive drive for higher spending Furthermore, shifting demographics as an
and broader investing, certain tension points aftermath of the 35-year one-child policy
exist. With rapidly rising wealth, the mass means that the burden of family rearing
affluent class’s demands are becoming is only growing. Currently there are 3.4
more sophisticated but socio-economic working adults for every person aged over
developments have not always kept up to 60, but by 2030 the dependency ratio will
pace. We observe several dilemmas as they decrease to 1.5. These factors have led
strive to upgrade their quality of life. to a sense of financial insecurity which
undermines their view of personal wealth.
RISING INCOMES, BUT
NOT PERCEIVED WEALTH Given the future uncertainty, many still view savings as a safe
haven. While the savings rate is trending downwards, it is
Rapid economic development has brought
unlikely to fall radically to match the western world.
about a dilemma, where despite rising
incomes many are uncertain about future
quality of life due to mounting expenses. As a result, the level of income that
Though standard of living is increasing, the defines wealth is a moving (and surging)
rate of improvement is tapering. According target. Many people are unsure of how to
to our survey, expenditures have increased qualify their own wealth status. In a 2015
across all categories, with food and drink survey by Chinese Academy of Social
being ranked the highest and even more so Sciences, only half of the respondents with
in Tier 1 cities. annual personal income of RMB 300,000
consider themselves as middle class,
Urbanization is ushering people to higher
though this income level already sits at the
tier cities and population density is
99th percentile of the Chinese population
skyrocketing. The mass affluent class is
and near the top end of our mass affluent
pressured by rising property prices and
survey sample.
better housing is not always affordable.
Rising inflation and depreciation of the
currency also intensifies the situation.
Copyright © 2017 Oliver Wyman 8DESIRE TO BROADEN professional advisory and unwilling to
INVESTING BUT pay for investment ideas and research,
as fees are deemed high and not tied to
UNTRUSTING OF
performance (Exhibit 8). Chinese investors
PROFESSIONAL are not ready for a fee-for-advice wealth
MONEY MANAGEMENT management model. A prior Oliver Wyman
Most of the money is self-managed. In fact, study revealed that advisory fees account for
the mass affluent class is fairly confident in less than 5 percent of total China wealth
their investing abilities. 62 percent of those management revenues, compared with
surveyed evaluated themselves as having about 30 percent in the United States. The
good or excellent investment knowledge wealth management industry is largely
(Exhibit 7). They are still sceptical about remained at a product selling oriented stage.
Exhibit 7: Self-evaluation on investment knowledge (% respondents, 2016)
2% 1%
10%
62%
23%
34%
evaluated with good
or higher investment knowledge
Quite good Very poor
Very good Quite poor
29%
Excellent Neither good nor poor
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
Exhibit 8: Willingness to use professional investment support (% respondents, 2016)
Not pay Use less
Making decision for investment sophisticated
Use a professional Make decision yourself ideas/research trading systems
28% 27% 45%
investment advisor yourself
Excellent 54% 46% 45%
Pay for more Not pay
investment 29% 33% 37% for investment Very good 47% 33% 35%
ideas/research ideas/research
Quite good 42% 37% 29%
Pay for better Use less
trading systems/ 39% 28% 33% sophisticated Neutral 44% 38% 33%
premium transactions trading systems
Self evaluation of
Neutral investment knowledge
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
Copyright © 2017 Oliver Wyman 9Volatility in domestic financial markets and invest globally. Our survey reveals that
currency depreciation has promoted interest 59 percent of respondents are unwilling
in overseas investing for risk diversification. to invest overseas, primarily hindered by
Though the Chinese government has lack of information and trusted advisors
introduced more controlled channels (Exhibit 10). Excess management fees and
in recent years (Exhibit 9), cross-border limited choice of distribution channels are
investment remains low. In part this is due the next concerns. Those investing overseas
to the uncertainties with the government’s are largely investors who view themselves as
wavering plans in liberating the capital highly competent; respondents that doubt
controls, while at core the Chinese are their capabilities tend to avoid cross-border
fundamentally unsure of how best to investing altogether.
Exhibit 9: Cross-border investment channels
INVESTORS •• Mainland retail and •• Mainland retail and institutional investors •• Mainland institutional investors who
institutional investors satisfy the eligibility requirements
MAINLAND
•• Mainland retail investors then
NEW (2015) NEW (2014) buy products issued by these
institutional investors
Mutual recognition
CHANNELS Stock Connect QDII
of publicly offered funds
PRODUCTS •• General equity funds, •• Eligible stocks listed on the Main Board of •• Depending on the categories of QDII
bond funds, mixed the HK Stock Exchange institutions, QDIIs may invest in
OFFSHORE
funds, unlisted funds or −− Money market instruments
physical index-trading −− Equity products
exchange traded funds
domiciled in Hong Kong −− Mutual funds
−− Structured products
QUOTA •• Aggregate quota: •• Aggregate quota: RMB 300 billion •• Each QDII is granted a specific quota
RMB 300 billion (US$ 48 billion) •• No cap on the aggregate quota
(US$ 48 billion) •• Daily quota: RMB 13 billion (US$ 2.08 billion)
Source: Oliver Wyman analysis
Exhibit 10: Willingness to invest overseas (% respondents, 2016)
Lack of information flow 53%
74%
Lack of trusted 44%
41% investment manager 57%
Excess management fees 39%
29%
Limited choices of 37%
distribution channels 22%
Lack of diversity in product types 26%
14%
Biased recommendations by 25% Willingness to
59% investment advisors 13% invest overseas
Yes 13%
Unsatisfactory return 11%
2% Unwilling to
No Don’t know 5% invest overseas
Willingness to invest overseas
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
Copyright © 2017 Oliver Wyman 10Without uptake of professional investment
advisory, achieving strategic asset allocation With the lack of professional support in sourcing and placing
will be challenging for the mass affluent assets, wealth may well continue to be illiquid and the vast
class, whose financial sophistication is majority of consumption power may be stuck in deadlock.
generally still nascent. The situation is likely Product-centric offerings will gain better traction.
to be aggravated by the shortage of quality
financial assets available for investment in
the current market. Wealth structures are Academy of Social Sciences, 62.9 percent
already structurally imbalanced with heavy of the middle class felt that the level of
allocation towards illiquid, non-financial social welfare protection was too low and
assets. The China Household Finance Survey ineffective. The insufficient public safety
by the Southwestern University of Finance net is driving consumers to allocate money
and Economics suggests that the share of differently. These concerns extend to mass
allocation towards property investment affluent consumers. Our survey reveals that
is as high as 79.5 percent, whereas only future healthcare treatment is the top reason
10.8 percent are attributed to financial for setting money aside, and education
investments. The preference for property follows closely behind as the third reason
assets extends to overseas allocation. In (Exhibit 11).
the first 9 months of 2016, the accumulated
Chinese non-financial investment overseas Concerns are about both affordable
was RMB 883 billion, representing access and quality of service. Despite
53.7 percent year-on-year growth.5 the government pushing on healthcare
spending, support to alleviate the financial
burden is evidently inadequate. Patients
STRIVING TO ‘LIVE WELL’ today have few financing options outside
BUT STILL UNEASY ABOUT their own pocket, as insurance and employee
BASIC WELFARE benefits are insufficient and subsidies
or loans are not universally accessible.
While increasing spending towards affluent Relative to mature markets, there is a clear
lifestyles, Chinese consumers are growing discrepancy in resources allocated to
more acute with its demands around welfare. healthcare. China has 22 doctors for each
In a 2015 study conducted by the Chinese 10,000 in population, and only 30.6 percent
Exhibit 11: Reasons for investing (% respondents, 2016)
For the future health care treatment 49%
Gain competitive edge 42%
Education 38%
New/bigger Housing 37%
To save up for near-term purchases 36%
Retirement 26%
No specific plans 9%
Wedding/wedding gifts 8%
Others 4%
Source: Oliver Wyman Chinese consumer and investor survey 2016, Oliver Wyman analysis
5. Ministry of Commerce of People’s Republic of China press release (商务部召开例行新闻发布会), 18 October 2016
Copyright © 2017 Oliver Wyman 11of Chinese doctors have a Bachelor’s degree Similarly, those who can afford the expense
or higher – compared to 27 and 100 percent may look overseas for education. In 2015,
in the United States.6 Qualified doctors and over 500,000 students were studying
quality healthcare equipment is not only in abroad, representing a 13.9 percent increase
scarce supply but also highly concentrated in from 2014, and this trend is accelerating.
the largest hospitals of the Tier 1 cities. There It is an expensive option to study abroad
are vast capacity issues at the top hospitals as over 90 percent of these students were
and waiting lists are extensive. self-funded.8 As wealth grows, sending
children overseas is becoming increasingly a
The scepticism towards the local quality viable option. Those who leave are now more
of care is fuelling a rising medical tourism inclined to come back – for every 10 overseas
market, which is growing at a faster rate students, 8 are returning after graduation in
than the tourism industry. A phenomenon 2015 versus only 3 in 2006.9
that used to be seen amongst the Chinese
high-net-worth is now moving mainstream
amongst the mass affluent. Rising incomes
and growing information flow have enabled
the more affluent Chinese to consider The perception that the Chinese consumers will
overseas options for anything from wellness indiscriminately buy more goods is a myth. As they
services to medical care and treatment for search for ‘experience goods’ to elevate lifestyles, they
critical illnesses. The top 5 destinations, are at the same time seeking upgraded options to social
in order, are Japan, Korea, US, Taiwan, goods to improve well-being.
and Germany.7
6. Essence Securities research, 出境医疗风正起，新视野打开新格局
7. Ctrip
8. Ministry of Education of the People’s Republic of China
9. Ministry of Education of the People’s Republic of China
Copyright © 2017 Oliver Wyman 12Copyright © 2017 Oliver Wyman 13
3. WHAT IT MEANS FOR YOUR BUSINESS
As Chinese mass affluent consumers STRENGTHEN PRODUCT SUPPLY
embark on a new era of spending, it is
now the time to capture the opportunity. Wealth managers will need a staged
For the first time in the last decade, approach to evolve market demand towards
consumption momentum is accelerating the investment advisory model of mature
but paralleled by cooling sentiments markets (Exhibit 12). Unlike mature markets
around the economy. Selling today is where there exists an abundant supply of
more challenging. Successful models diversified products catering to various
are constantly being reinvented and new levels of financial literacy and needs, China’s
opportunities are waiting to be unlocked. investment products are less sophisticated
and more commoditised. Rather than
Promoting a spending economy involves centering the offerings on advisory, Chinese
shifting the full Chinese wallet – releasing wealth managers add value by providing
savings and balancing investments to free access to unique products.
up liquidity and unleash spending power,
and developing consumer products and Competitive advantage in the near term
services that fulfil maturing tastes. Alongside will remain supply driven. Providing
policy changes to restructure the economy, information to facilitate selection of
consumer businesses and wealth managers vanilla products at low costs will be keys
can seize the opportunity to catalyse the full to success. A next-stage catalyst will be for
potential of the Chinese consumer. money managers to upgrade sourcing and
in-house product structuring capabilities.
This will enable customisation of investment
IMPLICATIONS FOR products and develop proprietary assets as
WEALTH MANAGERS an inimitable edge. Wealth managers can
further complement products with services
Wealth managers should consider to enhance the proposition, for example,
three themes to capture the emerging providing tools for account administration
investing opportunity: and reporting.
•• Strengthen product supply
For example, Ant Financial started with
•• Innovate with product design
YuEBao, a money market product, to
•• Sidestep trust issues
provide users with interest on idle cash.
Later, it expanded offerings to include
mutual funds, insurance, ABS products
and more, which offered higher returns
to prevent loss of idle cash to other
channels. Top online wealth management
platforms are continually deepening their
understanding of customers and upgrading
capabilities to meet evolving demand.
Copyright © 2017 Oliver Wyman 14Exhibit 12: Stages of wealth management development in China
CHINA VM V3.0
Long-term: Similar
to mature markets
CHINA VM V2.0
Short to mid-term:
Future of China
CHINA VM V1.0
China Today
Investor • Seeks absolute return • Wants diversification • Seeks overall
characteristics • Believes their investment
(product types and origin) portfolio/asset allocation
but lack knowledge
ability is as good as • Fully aware of
professionals • Still skeptical about risk-return concepts
professional AMs
KSFs for FIs • Compete on scale: • Provides access to • Provides wide range of
channel, # of RMs − Information sophisticated products
• Manufacture high yield − Vanilla product • Truly customer-centric
financial products • Ensures low cost
Source: Oliver Wyman analysis
INNOVATE WITH Another example is cross-border
PRODUCT DESIGN exchange-traded funds (ETFs), where the
funds can be structured to track a range of
An entry point to professionalising investing underlying offshore assets (bonds, stocks,
could be embedding the concept of strategic commodities, etc.) and deploy various
asset allocation into product design. investment strategies (hedging, leverage,
Fund-of-funds can be the launch pad for etc.). ETFs offer liquidity and transparency,
achieving asset allocation. These cater well while being cost effective. The Chinese ETF
to the mass affluent class’s overall passive market is still under-developed and under-
investment profile and can fulfil a range of penetrated, but our research suggests that
investment objectives at a small fraction interest is growing particularly with more
of traditional advisory fees. Fund-of -funds affluent households. Cross-border ETFs
are new concepts and highly anticipated can be executed through the QDII, Mutual
as hot products in 2017. More than 30 new Recognition of Fund schemes, as well as the
funds from Guangfa, China Universal Asset Stock Connects.
Management, Noah, and 18 other fund
management companies are being reviewed
in early 2017, and boast a rich product
selection, from diversified, to quantitative,
to retirement focused. Those that excel
at product development are likely to enjoy
first-mover advantage.
Copyright © 2017 Oliver Wyman 15SIDESTEP TRUST ISSUES to more systematically and accurately
develop investor profiles and understand
Trust issues can be tackled through risk appetite. The model then creates
wealth management solutions that a match between the investors and
minimize reliance on individual advisors. products, based on a set of pre-developed
Robo-advisory offerings can provide but actively managed portfolios. Various
automated self-service tools for formats are emerging in China but yet to
investment research, portfolio reach tipping point with the mass affluent
construction and rebalancing, and class (Exhibit 13), with traditional financial
reporting. These are complemented with institutions such as Tianhong Fund and
light-touch advisory support via phone, Huatai Securities itching to venture
live chat, or email. into the space.
A robo-advisor would help investors
build their portfolio according to a survey
of investment preferences. With more
data being captured, algorithms are able
Exhibit 13: List of major Chinese robo-advisory platforms
Product type
Global China Mutual Govt Comd./ U.S. A- Minimum
Platform ETF ETF QDII fund bond Futures shares shares Fee inv. req. Approach
Clipper Modern
0.5%
Advisor US$50 K asset/portfolio
of AuM
(蓝海智投) allocation theory
0.5%
MiCai (弥财) US$5 K NA
of AuM
Caigin
0 US$500 NA
(财鲸)
Overseas investment Modern
iToumi
0 US$500 asset/portfolio
(宜信投米RA) – focused platforms allocation theory
WQUANT Fee for 3rd party providing
0
(微量网) strategy trading strategy
ZiPeiYi
NA NA NA
(资配易)
Innovane Member-
0 Volatility pumping
(胜算在握) ship
Mean-variance,
JUAICAI 20% of
RMB 3 K Black Litterman,
(聚爱财Plus) return
Risky Parity
Danjuan 0.5%
RMB 10 K NA
(雪球蛋卷基金) of AuM
Product focus
Source: China Securities, Oliver Wyman analysis
Copyright © 2017 Oliver Wyman 16IMPLICATIONS FOR For example, Chanel marketers are
masterful at storytelling. In China, Chanel
CONSUMER BUSINESSES
has leveraged exhibition tours with special
We see three themes that would differentiate Chinese elements (“Culture Chanel” and
businesses in the new consumer era, and subsequently “Little Black Jacket”), and its
accordingly a set of tactics to deploy: movie “Coco before Chanel” to showcase the
legend of Coco Chanel and a tale of heritage.
•• De-commoditise and emotionalize
The story of Coco is inspirational – it is
your proposition
about her view of the world and how she
•• Align distribution strategy
moved mountains to revolutionize the
•• Shift to services
fashion industry. Coco’s identity has an
elusive appeal with customers as it taps into
DE-COMMODITISE dreams around strength, prestige, and a life
AND EMOTIONALIZE philosophy. With a compelling narrative,
YOUR PROPOSITION Coco’s legacy has created an emotional
connection with customers.
Brands need to craft propositions
that highlight experience building and
non-commodity offerings. Consumers ALIGN DISTRIBUTION STRATEGY
are more interested in buying ‘personal
signifiers’ – items that ‘make others feel In the increasingly dynamic and fragmented
good about me’. One tactic to deploy is retail environment, selling ‘experience’ has
personalisation. An example of this would be profound implications for distribution models.
NIKEiD, which enables customers to create Delivering an integrated omnichannel
their own Nike gear online by selecting shoe experience requires broadening experience
colour, design and performance features. The building across the full customer journey,
enhanced customisation not only created a all segments, and from physical to digital
tailored product, but also lifted Nike’s profit touchpoints. We already see this from
margin by channelling customers directly ecommerce retailers moving offline, including
to the online sales platform and eliminating a prominent US$2.6 billion plan from Alibaba
the conventional retailer. With the aid of to take department store chain Intime private.
technology, customisation can be executed Online platforms are experimenting with
at low costs while leveraging existing product physical formats to remove friction points
lines to bring added experience. in the shopping journey by providing the
necessary tactile experience (e.g. product
Marketers should create memorable trial) and in-person engagement (e.g. personal
and magnetic experiences to entice the touch). The winners are not simply treating
consumer. This will require a new focus on brick-and-mortar as showrooms, but instead
creativity. ‘Sell dreams’, and not substance. creating an end-to-end high-touch to virtual
It is not just about the product, but brand experience while using sophisticated
interesting, imaginative experiential events digital systems such as automatic check-out,
activated by the product that speak to the dynamic pricing, and in-store data tracking
aspirational status (e.g. luxury) and desired to enrich and embed online-offline analytic.
lifestyle (e.g. travel). ‘Sell empathy’ for goods Alibaba has also advanced a strategic
that speak to insecurities around personal partnership with Bailian Group, which has
and family welfare. 4,700 stores across 200 Chinese cities, to
enhance technology and analytic leveraging
the joint O2O platform.
Copyright © 2017 Oliver Wyman 17Despite growing uptake of online sales, the best at offering the Chinese perspective.
shoppers can be brought back into Finally, richer data and enhanced technology
brick-and-mortar, but store activation will paves way for new ways to follow the trail of
require creativity. Stores need to facilitate the travelling Chinese consumer. Analysis
imaginative experiences to make the trip of transactional and digital footprint data
worthwhile. Flagship stores could be can generate deeper insights for improved
positioned as experience centres for customer targeting.
the brand. Burberry’s 3-storey flagship
in Shanghai’s Jing An district creates a
theatrical brand experience through SHIFT TO SERVICES
multi-sensory digital technology, including Players who traditionally think of
audiovisual experiences with 40 video themselves as consumer package goods
screens and 130 speakers in-store, and use (CPG) companies or retailers should
of radio-frequency identification on select consider adjacent services that reinforce
clothing to trigger display of runway and what they traditionally sell. Reinventing the
product videos on fitting room mirrors that proposition can be a means to strengthen a
are screens when activated. More recently, position in the current category or advance
the new Shanghai flagship store of DJI, a a position into an entirely new market.
producer of drones, features a flight cage for Anheuser-Busch InBev, a global leader in
drone demonstration, a gallery showcasing beer brewing, is cultivating China’s demand
aerial images, and a projection screen to for expensive craft beer. While planting
showcase the brand story. its craft brands in Chinese distribution
networks, it has also recently acquired a
As consumers shop more and more stake in Boxing Cat Brewery, a budding
overseas, brands need to follow their craft brewer in China.
customers and develop a ‘Chinese
strategy’ and not just a ‘China strategy’. The proposition can be transformed by
Our survey shows that brands are still lacking selling on-demand access rather than the
the ability to provide a tailored shopping product itself. Nothing can be more Chinese
experience for Chinese travellers. 47 percent than buying a bike, but even this is becoming
of respondents are dissatisfied with the a service rather than a product. With the
lack of willingness to speak Putonghua and vast penetration of mobile, bike sharing
43 percent are unhappy about the level applications such as Mobike have taken off.
of Putonghua fluency when shopping in They enable the convenience of identifying
overseas retail stores. Aside from service and accessing a nearby bike anywhere and
quality, business units need to be re-aligned anytime, and the flexibility of drop-off at
to tailor the Chinese strategy for overseas many parking spots right by destinations – all
retail – the overseas team is not likely to be enabled by mobile GPS and mobile payment.
* * *
In the end, there is real evidence that the Chinese mass affluent class will deliver to
the promise of a bigger spending economy. The new consumer class will behave much
differently from its western counterparts. Winners will be the ones that ride the tailwinds
of change and understand the deep motivations and desires of the Chinese consumer.
Copyright © 2017 Oliver Wyman 18ABOUT OLIVER WYMAN Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialised expertise in strategy, operations, risk management, and organisation transformation. The firm has more than 4,500 professionals around the world who help clients optimise their business, improve their operations and risk profile, and accelerate their organisational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman. ASIA PACIFIC +65 6510 9700 EMEA +44 20 7333 8333 AMERICAS +1 212 541 8100 Copyright © 2017 Oliver Wyman All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.
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