Locals, tech key for foreign firms in China's $970bn pension bonanza
Local talent and technology will play a crucial role for foreign companies in being successful in China’s trillion-dollar private pension market, industry experts said.
The latest estimation showed that the total assets of China's nascent private pension market could reach Rmb7 trillion ($970.2 billion) by 2030, according to KPMG China and ASIFMA's joint report on China pension reform released on Monday.
“Technology is likely to be a hugely important factor in the success of foreign financial firms offering pensions services in China,” the report noted.
This includes interactions with customers, scheme management, investment management, and compliance.
“For foreign asset managers to win this market, they need to adapt by looking inward to the local talent pool that will integrate the local asset management market knowledge with digital skills,” Tong Chee Hoong, partner, asset management at KPMG China, told AsianInvestor.
China officially rolled out its private pension scheme, or the third pillar, in April 2022.
Ever since, foreign firms, including life insurance companies, fund management companies, and banks have been actively looking to deploy more resources to get ahead in the initial stage.
KPMG projections suggest that the market could grow to Rmb7 trillion ($970.2 billion) in size by 2030. The projection is based on the premises of higher cap on contribution eligible for tax incentives from the current Rmb12,000 to Rmb20,000, and the increase of retirement age to at least 60.
It will be Rmb4 trillion in size by 2030 if the current regulatory landscape remains.
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As the third pillar is just getting underway, it is likely to see the most dramatic growth within the next few years, the report noted.
Although it’s a very competitive market that both local and foreign firms want a slice, Eugenie Shen, managing director and head of ASIFMA Asset Management believes foreign firms with years of experience in managing and investing for pensions in other countries will have a competitive edge over local firms in investment expertise.
Agreeing with Shen, Chloe Qu, senior analyst of manager research at Morningstar said foreign managers can focus on providing innovative and differentiated solutions.
“While Chinese local asset managers may have a larger customer base and better brand recognition, some of them may not have as strong investment capability and track records,” Qu told AsianInvestor.
“As Chinese investors are still very performance-driven while making investment decisions, building a proven onshore investing track records is still the foremost thing for foreign asset managers in being successful and becoming more competitive in China,” she said.
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What is different is that they need to be aware of Chinese market’s “extremely advanced” digitalisation.
Customers are accustomed to using their mobile to purchase services and products, and to be able to manage their accounts online 24/7, the KPMG and ASIFMA report noted.
Firms should consider offering robo-advisors besides round-the-clock access, while digital enrollment and payout should also be available, it said.
They can also leverage technology to reach and engage with more investors, while amplifying their branding and user stickiness, Morningstar’s Qu said.
“Local talent could provide the foreign managers more insights into market dynamics, investor preferences, and the regulatory landscape,” she noted.
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Overseas firms should also be aware of the important role of social media for Chinese consumers in purchasing all types of products, including financial services, the report noted.
In addition, Chinese financial firms have been very active in using social media for branding and customer education, and global players should embrace this marketing approach as well.
“It is helpful to recruit local Chinese talent that has had a global education, experience, and the English language proficiency that allows them to bridge China and foreign cultures,” said KPMG's Tong.