Welcoming the dragon

As sanctioned Russian oligarchs begin to vacate London, Chinese wealth holders with changing investment attitudes and a desire for more stable opportunities overseas are stepping in to fill the gap

It might only feel like yesterday, but it’s 21 years since Goldman Sachs produced a seminal piece of research that coined the term BRICs to represent Brazil, Russia, India and China – the four countries it forecast would reshape the world economy in the following decades. South Africa was added later. 

Of those original four, only China has genuinely lived up to its billing to date, jumping from sixth to second place in the global ranking and poised to overtake the US in the next 10 years or so.

It’s hardly surprising that China’s stellar growth has produced a considerable number of rich and super-rich citizens, many of whom want to invest their wealth around the world. 

With Russian oligarchs now in retreat following their country’s invasion of Ukraine and the subsequent sanctions placed on them, China’s high-net-worth and super-high-net-worth individuals have become the dominant force in personal wealth targeted by international financial centres.

Research conducted by private wealth law firm Boodle Hatfield last year found that mainland China and Hong Kong provided the two biggest cohorts of non-domiciled high-net-worth individuals relocating to the UK in the previous 12 months, with 650 and 620 individuals respectively moving to the UK.

Appeal of a better life

Kyra Motley, a Partner at Boodle Hatfield, says: “Despite all the uncertainties created by the pandemic and Brexit, more wealthy individuals from China are taking the opportunity to make their move to the UK and start a new life for themselves and their family.”

During the past few months, the ‘push’ factors from China have arguably intensified. In April and May, Shanghai was subject to a brutal two-month lockdown in an effort to sustain China’s rigid zero-Covid-19 policy – which had the inevitable effect of disrupting the economy. 

Furthermore, the Beijing government is leaning back towards socialist economics and has been introducing measures to restrict overseas travel.

“Last August, President Xi’s talk of ‘common prosperity’ – which commits to addressing income inequality and promoting people-centred development – also spooked the prosperous,” says Briony Sun, Chinese Family Office Executive at IQ-EQ in Jersey.

She cites the “prestigious education system, genteel culture, lifestyle and cultural diversity” as among the factors that have made the UK and London in particular one of the top emigration destinations for Chinese HNWIs. 

The UK is perceived as highly stable, she says, and getting your child admitted to a top private school in the UK can be a key target for wealthy Chinese families.

The most obvious outward manifestation of this attraction to the UK is investment in prestigious high-end property, especially in London, which has led to the city being dubbed Beijing-on-Thames. 

Data published by the Office for National Statistics for 2019 suggested that more than 218,000 properties in London were owned by Hong Kong or Chinese buyers and, in that year alone, some £7.69bn was invested. 

Sun says Chinese investors’ love of property can be attributed to the traditional belief that property provides security and stability in the long term over other types of assets. 

She adds: “The investment in overseas properties is also propelled by the implementation of more than 300 new regulations by the Chinese government recently to regulate the housing price and curb levels of investment domestically.”

China also has significant business investments in the UK. In 2019, there were around 800 Chinese companies in the UK, employing 71,000 people and with total revenues of £91bn. 

Next generation 

Professional firms in the City and elsewhere have already been wising up to this influx – for example, by employing Chinese language-speaking personnel in key roles.

However, Chinese investors are becoming more open-minded about how and where to allocate their wealth and are increasingly diversifying their investment portfolio, says Sun. 

“The young Chinese generation are becoming more aware of social equality and the investment impact on the environment,” she explains. “This can be reflected in the investment decisions they make.” 

Alongside financial products and property, many are turning to funds and even cryptocurrency, she adds.

Jersey and Guernsey have long recognised the opportunity that HNWIs from China and Hong Kong represent in terms of offering services to those looking for an international financial centre to manage aspects of their wealth. 

Jersey Finance’s Links with China publication sets out the island’s stall. “Demand for our services from China has accelerated in recent years, especially given a more liberalised approach in China to international investment,” it states. 

“While Jersey is ideally placed for company listings, cross-border transactions and fund servicing, it is also a highly respected centre for private wealth management, attracting deposits and investments from around the world.”

Gateway to London

From an institutional perspective, says the Jersey Finance report, leading Chinese firms in banking and retail services have used Jersey structures. And investment firms have turned to Jersey for private equity investment, property acquisitions and sales.
 
It states: “Jersey is also appealing to the increasing numbers of ultra- and high-net-worth individuals in China seeking to protect their global assets through trusts, foundations and other entities, and to further their philanthropic objectives.”

The document positions Jersey as the “Gateway to London”, emphasising the island’s close relationship with the City. It cites as evidence the number of Chinese AIM-listed companies incorporated in Jersey or holding companies that are incorporated in Jersey prior to an IPO. 

Jersey has also established a strong reputation as a jurisdiction for property holding structures to be established, with many of the acquisitions being commercial offices in London. 

The island is also a magnet for the increasing interest in private equity in China, with Jersey-based funds sometimes carrying out transactions within the People’s Republic itself. 

Guernsey has also been looking to boost its relationship with China – and its attraction to Chinese HNWIs – in recent years. In 2017, Guernsey Finance launched a Chinese language website, setting out the island’s key offerings. 

Guernsey has been particularly strong in the insurance and fiduciary sectors, and is seeking to expand that by building more tailored private wealth services, such as family office.

Both Jersey’s and Guernsey’s finance associations, and many firms, have offices established in mainland China, as well as in Hong Kong. 

But as the relationship with the US and the West has changed in the past few years, it’s only to be expected that the balance of effort has also shifted further towards managing wealth for those who are leaving the country. 

Sun says: “I think opportunities will present themselves in many areas. However, they may take some time and firms need to be ready when they come.”

She adds: “The Channel Islands are still less known among Chinese investors, so enhancing awareness and educating investors and their trusted advisers about the benefits of using the Channel Islands will be an ongoing effort.”

Sun’s message is clear: businesses that want to do more than simply gain exposure to Chinese clients will need to focus on cultural differences and developing excellent communication and understanding.