China Private Wealth Report China's Private Banking Industry: Embracing rivers to form the sea Content Preface: Embracing rivers to form the sea, the higher we climb the further we can see 1 Acknowledgement 3 Chapter 1 Overview and trends of China's Private Wealth Market in 2021 4 Total assets are expected to increase steadily in 2021 with economy back to normal supported by strong fundamentals 5 Overview of China’s Private Wealth Market in 2019-2020 and outlooks for 2021 7 HNWIs are increasingly concentrated in China's top three economic zones expanding from Tier-I cities to surrounding cities 12 Chapter 2 Demographics, Investment Preferences and Behaviors of China's HNWIs 15 [Topic I: Demographics and diversified needs] Increasingly diversified needs and holistic wealth objectives of HNWIs 17 HNWIs is getting younger with more diverse background 17 Needs for wealth creation from young HNWIs are growing along needs for wealth protection and inheritance from more mature HNWIs 21 HNWIs have holistic needs including personal, professional and social needs 22 Domestic and overseas asset allocation is increasingly rational with trends towards new investments destinations and higher appetence for value-added services 34 [Topic II: Product and service ecosystem] Building of an integrated financial and non-financial service ecosystem to meet personal, professional and social needs 40 Experienced HNWIs are more open to equity products, NAV products and professional asset allocation 40 HNWIs are more aware of family inheritance with needs for tax and legal advices on top of wealth inheritance 49 Private banks are expected to offer access to corporate solutions, with still limited offering beyond traditional financing 53 HNWIs are open to charity services provided by financial institutions 54 [Topic III: Hybrid service model] Customer-centric and digitally-enabled service model to provide forward-looking insights and E2E support 55 Chapter 3 Competitive landscape of private banking in China 61 Among diversified players, bank-affiliated private banking remains the top choice 62 From insight and experience to investment services, the importance of professional support continues to rise 64 Appendix: Research Methodology 66 Copyright Statement 70 Preface：Embracing rivers to form the sea, the higher we climb the further we can see China Merchants Bank and Bain & Company jointly released the first China Private Wealth Report in 2009. We have been tracking the changes in China's wealth market for over a decade now. During those years, we have experi- enced ups and downs of the high net worth individuals (HNWI) and wealth management institutions, and accompa- nied them on their journey. Our goal is to provide references and share perspectives in order for the HNWIs and wealth management institutions to find success. We have done so through continuous research, interviews, market tracking, data accumulation and analysis. We are committed to implementing the highest research standards and presenting research results with new perspectives, consistency over time and expertise. Since 2020, the Covid-19 pandemic has made the political and economic landscape more complex and unpredict- able. The domestic economy has been under pressure and is gradually progressing. Due to domestic and interna- tional factors, presenting both opportunities and challenges, China has been the first country to contain the pandemic and bring the economy back to normal. China's HNWIs are becoming increasingly experienced after facing complex market environments. At the same time, assets and number of HNWIs are growing and are entering a stage of quality growth. In this context, CMB and Bain once again joined efforts and released the 2021 China Private Wealth Report, the 7th in its series, subtitled “embracing rivers to form the sea” empowered by CMB's customer centricity and Bain's scien- tific approach. In this report, we closely observed the changes in the investment preferences and behaviors of high-net-worth individuals with increasingly more investment experience. We went to Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Nanjing, Wuhan, Chongqing, Xi'an, Hong Kong and other cities to conduct in-depth research and interviewed over 4,000 HNWI to further understand the current needs and state of mind of Chinese HNWIs. We found that HNWIs are getting more sophisticated in wealth management and asset allocation over the years. They have become more rational in diversifying assets allocation, while leveraging professional insights and services, expecting wealth management institutions to integrate domestic and foreign resources to provide integrat- ed financial and non-financial services. One of the 2021 highlights is the expansion of younger HNWIs from the new economy. The new economy segment is more focused on asset allocation, forward-looking insights, and non-finan- cial value-added services. They value professional services, insights, convenience and one-stop-shop solutions. Over the past two years, China's wealth management institutions have experienced both opportunities and challenges due to market volatility. As the total wealth of the society continues to grow, HNWI’s needs for wealth management have become increasingly diversified and concentrated towards top institutions with mature service systems. The top institutions are competing to build differentiation and moats. Development of China's wealth management institutions has entered the stage of quality growth. In this new era, it will be a priority for wealth management institutions to build an innovation-driven wealth management ecosystem, strengthen customer centricity, better understand the increasingly diversified needs of customers, enhance customer value, integrate the value chain of financial institutions, boost digital and build an integrated ecosystem to set in motion the flywheel 1 PREFACE：EmbracingPreface：Embracing rivers torivers form tothe form sea, the sea, thethe higher we we climb climb the the further further we can we seecan see effect that drives growth of HNWIs and wealth. After turbulences in 2020, China’s wealth management market has been creating value through innovation and intelligence, customer centricity to address customer needs. Going forward, China's wealth management market still needs to follow the philosophy of "embracing rivers to form the sea'', focusing on the needs of different segments, integrating internal and external resources, connecting internal and external service providers, and building an extensive wealth management platform. Through human-digital enablement, banks can develop forward-looking insights, comprehensive offering, and outstanding interactions to create long-term value for customers. 2 Acknowledgement This report is the result of close long-term collaboration between China Merchants Bank and Bain & Company teams. In 2009, the China Merchants Bank team pioneered the idea of an in-depth study of China's private wealth market. Over the past decade, China Merchants Bank and Bain & Company have continued to focus on this topic by follow- ing the changes and trends in the market. In 2021, China Merchants Bank and Bain & Company joined hands for the seventh time to conduct an in-depth study on China's private wealth market, the behaviors of high net worth individuals and China's private banking industry. Since 2009, China Merchants Bank has made great efforts in collecting first-hand information of HNWIs by coordi- nating and arranging high-end client resources inside and outside the bank. They conducted about 4,000 interviews and a large number of in-depth discussions with clients and relationship managers across the country together with Bain & Company. China Merchants Bank also provided extensive business expertise and industry data, which laid a solid foundation for this in-depth research and analysis. Leaders from China Merchants Bank made valuable comments and suggestions on the overall methodology and framework of the report, which has been instrumental to the construction of this report. We would like to thank President Tian Huiyu, Vice President Liu Jianjun, Vice President Wang Jianzhong, General Manager Wang Yanrong of Private Banking Department, Vice President Wu Chunjiang, Vice President Wang Lei, Vice President Liu Yuheng, Chief Investment Advisor Chen Lin, and everyone in the China Merchants Bank team. During the research and analysis, Bain & Company team continued to improve the methodology and modeling framework, such as refining the market sizing model, and identifying fast-growing asset classes in recent years. They also conducted in-depth analysis, research and interviews to identify and substantiate new findings. On top of completing research and interviews with CMB clients and relationship managers, Bain & Company team also conducted external client interviews to further complete supporting data. We would like to thank Phillip Leung (Senior Partner), Scully Cui (Associate Partner), Kelly Tian (Senior Manager) and everyone in the Bain & Company team. We would also like to thank each of the HNWIs and relationship managers who were interviewed and participated in the research, as well as our colleagues at the head office and branches of China Merchants Bank who helped with the interviews and the completion of this report. They actively assisted with data screening, client research and interviews, and shared their years of experience in the industry. They have been very helpful in supporting market research and providing feedback and