The banking wealth management sector in China experienced significant growth in 2024, driven by an evolving clientele whose financial needs have simultaneously expanded and diversifiedAs of the end of 2024, the market size reached a staggering 29.95 trillion yuan, marking an 11.75% increase from the beginning of the yearThis growth was paralleled by a slight rise in the number of wealth management products, which reached approximately 40,300, reflecting a 1.23% increaseThe transformation towards net-value based financial products, innovation in product offerings, and a reallocation of funds to support the real economy have been pivotal in shaping a multi-tiered and comprehensive wealth management service system within the banking industry.

2024 marked a notable year as it was the first full year after the transitional period of new asset management regulations concludedThe adoption of net-value based financial products surged, with their total market size standing at 29.5 trillion yuan—an impressive 98.5% of the total marketThe legacy of non-net-value products dwindled to a mere 450 billion yuanDuring this same period, the market share of wealth management companies grew to a substantial 87.85%, reflecting a new dynamic characterized as "professional institutions leading with collaboration from parent banks."

The core objective of transitioning to net-value based products was to dismantle the precedent of guaranteed returns, thereby enabling financial products to accurately reflect their intrinsic valueAs per reports from the end of 2024, wealth management companies commanded a dominant position with 87.85% of the market share, driving market dynamics to shift away from traditional financial institutionsThere was a noticeable decline in the market share of large banks and joint-stock banks, while wealth management firms became the preeminent force in the marketIn response to the evolving regulatory landscape, city commercial banks and rural commercial banks that had not established wealth management companies were encouraged to reduce their wealth management scales, further streamlining market operations.

The successful transition to net-value based products signified the end of the era marked by "principal and interest guarantee." However, many investors still grappled with inadequate understanding of the volatility and inherent risks associated with net-value products

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Consequently, amid the dual impacts of decreasing deposit rates and fluctuations in the capital markets, investor risk appetite tended towards cautionAnnual reports indicated that the share of mid- and low-risk products (classified as level two or below) in the market rose to an impressive 95.69%, up by 2.89 percentage points since the beginning of 2024, while high-risk offerings comprised less than 0.3% of the total.

The structure of net-value based investment necessitated a shift in investor mindset, calling for a reduced reliance on unrealistic stability in expected returnsInvestors were prompted to deepen their comprehension of the differences between projected returns and actual outcomes in these products, which heightened the importance of financial literacy and educationIn 2024, initiatives to bolster investor understanding gained momentum, with over 120,000 educational activities reaching an impressive 180 million participantsBanks and wealth management companies made strides towards elevating financial knowledge and risk awareness among investors, guiding them to develop sound financial concepts and accept fluctuations in net values as part of adapting to the new marketplace.

The People's Bank of China consistently lowered policy interest rates starting in 2023, compelling investors in wealth management products to explore solutions for enhancing returnsThis included extending the duration of fixed deposits and opting for wealth management products with higher yieldsAs Zhaoyin Wealth Management's President, Zhong Wenyue, expressed at the 2024 China Wealth Management Forum, banks should capitalize on emerging opportunities in the industry by diversifying strategies to enhance product returnsThis approach includes focusing on "fixed income plus" offerings, continuing to diversify domestic asset categories, capitalizing on favorable conditions in overseas markets, innovating product strategies to cater to varying client needs, and innovating product functionalities to achieve a balance between safety, liquidity, and utility.

In 2024, fixed income products retained their leading position, with their total market size reaching 29.15 trillion yuan, comprising 97.33% of the available wealth management products

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Conversely, the mixed asset category achieved a presence of only 0.73 trillion yuan, merely 2.44% of the totalFurthermore, assets classified as equity and financial derivatives remained remarkably small, totaling 0.06 trillion yuan and 0.01 trillion yuan respectivelyThis trend highlighted the continuous decline of non-standard financial assetsYuan Zhihong, the chairman of Huaxia Wealth Management, pointed out that amid dwindling high-yield investment options, wealth management institutions must seek alternatives, with equity assets presenting a viable avenue.

A pivotal shift occurred on September 24, 2024, when the central bank incorporated asset price behavior into its monetary policy objectivesThis strategic move aspired to stimulate economic growth by maintaining low interest rates while encouraging a rebound in asset pricesAccording to Yuan Zhihong, the Chinese equity market was positioned to perform favorably during periods of recovery, suggesting that wealth management firms should bolster their equity asset allocations, thus reinforcing the correlation between asset management and the equity market to amplify investment returns for clients.

In response to the growing interest in equity products, Huaxia Wealth Management rolled out customer-friendly index equity products characterized by high transparency and competitive fee structuresYuan Zhihong emphasized that index-based equity investment vehicles could serve as optimal entry points for channeling wealth management funds into the marketCompared to more traditional active funds, index products possess an inherent clarity in how they reflect underlying indices, making their price dynamics more understandable to investorsThese products facilitate commendable absolute returns over extended periods by creating dynamic investment portfolios based on equity, gold, and fixed income indices.

In recent years, the issuance and total size of public index funds reached unprecedented heights, with the number of passive index equity funds surging to 1,800, managing assets over 4 trillion yuan

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Notably, there were 850 exchange-traded funds (ETFs) listed on domestic exchanges, commanding a historic high of 3 trillion yuan in managed assetsDespite their relatively late inception within the market, passive index equity funds demonstrated robust growth, gaining broad acceptance for their efficiency and asset allocation value.

As we move forward, industry leaders like Wang Shengming from Xingyin Wealth Management underscored the need to completely redefine the investment paradigms in wealth managementThe transition initiated in 2018 by breaking through guaranteed yield back into net-value based models signifies only a step towards a deeper evolution—one that emphasizes strategic asset management moving from a singular focus on assets to a diversified, multi-strategy approachWang emphasized that this next phase necessitates a concerted investment effort within the equity sector and leveraging trading tools within the ETF framework to optimize equity exposure efficiency, enhancing the overall asset allocation effectiveness.

Moreover, as the demographic makeup of China continues to evolve with a rapidly aging population, there is a bright future for the third pillar of elderly care, particularly shaped by policies like the delayed retirement initiative and the impending nationwide rollout of the personal pension system by December 16, 2024. Song Funing, the President of Bank of China Wealth Management, indicated that the increase in demand for wealth management is coupled with challenges underpinned by low interest rates that could diminish asset yields and heightsAddressing such challenges requires a dedication to developing retirement-oriented wealth management products that prioritize security and stability while meeting diverse needs.

In addition, the emphasis on environmental, social, and governance (ESG) investments has gained traction within the wealth management marketSeveral cities, including Shanghai and Beijing, have initiated local ESG incentive programs, enriching the lineup of ESG asset management products

Dong Wenze, CEO of Xinyin Wealth Management, noted the nascent stage of ESG investment in bankingHe advocated for an integrated approach to enhance ESG capabilities, traversing through systemic design, governance, investment research, and product innovationBy the end of 2024, ESG-themed financial products had reached nearly 300 billion yuan in outstanding balance, depicting remarkable growth.

In terms of financial inclusivity, wealth management products have been instrumental in bridging regional disparitiesThe banking sector is actively expanding services to rural and remote areas through a dual-driven approach of technology and localized outreachBy 2024, the number of rural wealth management investors soared to 48 million, reflecting a 28% year-on-year increase, while smart investment advisory services extended their reach to over 120 million users—35% of total investorsIn response to the challenges of developing financial awareness in rural populations, China Agricultural Bank pioneered the “Huinongbao” series of products, covering 98% of county areas while achieving sales exceeding 50 billion yuan, benefitting 6 million farming householdsAdditionally, China Postal Savings Bank innovated the "Rural Revitalization Yield Certificates," which interconnected wealth management products with local industrial returns, making significant inroads in pilot areas with scalability of over 3 billion yuan.

In an effort to ensure equitable access to financial services, several banks launched differentiated products, such as China Everbright Bank's "Barrier-Free Wealth Management APP," tailored for disabled investors, achieving service outreach to over 100,000 users in 2024. Meanwhile, Citic Bank developed a flexible product for new urban residents, like delivery personnel, offering daily interest accrual and instant redemption, which achieved a scale exceeding 20 billion yuan within the year.

As vital components of the financial ecosystem, wealth management products play a crucial role in channeling idle resident capital towards the real economy, which in 2024 amounted to 25 trillion yuan in wealth management investments—over 70% of the total—targeting sectors such as technology innovation, small to medium enterprises, and sustainable green initiatives

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