(Bloomberg)
Updated: 2007-03-15 08:45

China's assets under management in the funds industry may top US$1.4 trillion by 2016 in what is the fastest-growing market in the world, McKinsey & Co Inc. said in a report Wednesday.

The New York-based international consulting firm expects managed assets, which were $156 billion in China last year, to average 25 percent annual growth for the next decade.

Growth in the world's most populous nation will be spurred by consumers seeking higher returns than offered by low-yielding bank accounts, the report said. The market will also be helped by overseas-listed Chinese firms returning to sell shares at home, bringing with them higher corporate governance standards, said Stephan Binder, a Shanghai-based McKinsey principal.

"Admittedly, this market is still at very early stages," he said. "I believe there're great growth opportunities."

Assets under management in China totaled about 8 percent of the country's gross domestic product in 2005, lagging behind the 214 percent in the U.S.,and slightly ahead of India's 7 percent, McKinsey's figures showed.

Last year, Chinese citizens kept about 79 percent of their personal financial assets in cash and in banks, where one-year deposits yield 2.52 percent a year, because of a lack of investment alternatives, McKinsey said.

The consultant expects the ratio to decline to 60 percent by 2016 as Chinese spend more on pensions, mutual funds, life insurance policies and bonds and stocks, leading to more business for asset managers, said Joseph Ngai, a Hong Kong-based principal at the firm.

Foreign Participation

Money managers will collect $2 billion to $3 billion of annual profits by 2016, the consulting firm said.

Of the more than 50 asset managers in China, more than 20 are joint ventures with Chinese companies that command about two-fifths of the market. That ratio is much higher than in the insurance and banking industries, where international companies faced more restrictions in the past, Binder said.

At the end of last year, the 10 companies with the most assets under management shared 57 percent of the market. Three of them already had foreign investors, including those partly owned by Credit Suisse Group, Deutsche Bank AG and Amvescap Plc.

More than three-fifths of China's asset managers still handle less than $800 million, which McKinsey considers the break-even threshold for profitability.

As the industry grows, managers still face challenges, such as a distribution bottleneck for fund sales. The four largest state-owned banks controlled 87 percent of the fund custodian market last year and more than half of mutual fund sales in the country, McKinsey said.