Prepping progress in principality

Tiny Liechtenstein gets set to take big trade and financial steps in China

Though it is the sixth-smallest country in the world, Liechtenstein has big dreams of attracting more tourists and other business from China.

Private wealth management in China would be the main focus for the tiny, landlocked, European nation. Nestled between Switzerland and Austria, Liechtenstein is anticipating healthy interest from wealthy Chinese customers because of its diversified asset management products.

While tourism is the mainstay of Liechtenstein's ties with China, economic relations have also been making steady progress. China is the second-largest economy in the world, but still has a low per capita level, while Liechtenstein, which has the world's second-highest GDP per capita in the world, is only the size of a Chinese township.

According to data provided by Swiss authorities, direct goods exports from Liechtenstein to China amounted to 225 million Swiss francs ($230 million; 171 million euros) in 2012, while the European country imported 97 million Swiss francs worth of goods from China.

China was the fifth-largest sales destination for the European nation in 2011 and has been steadily climbing since then, says Joseph Beck, general manager of the Liechtenstein Chamber of Commerce and Industry.

"The real import volume from China would be much higher if we include the Chinese goods that are shipped via Switzerland," Beck says.

Liechtenstein has a customs alliance with Switzerland and is also a member of the European Economic Area, enabling it to benefit from both frameworks. Banking on its close ties with Switzerland, Liechtenstein will also seek to cash in on the recent free trade agreement between China and Switzerland.

"We are looking for more links with the outside world as our domestic market is very small. China is an important external market for us," says Prince Alois, the regent of Liechtenstein.

"The China-Switzerland Free Trade Agreement will benefit companies from Liechtenstein that have units in China, as we are partly included in this agreement."

Though well-known as a financial center and producer of postage stamps, Liechtenstein is not known as an industrialized nation.

The European nation has approximately 4,000 businesses, roughly translating to one business for every nine inhabitants. The industrial sector accounts for nearly 40 percent of its workforce, and produces the same percentage of GDP, higher than the financial (27 percent) and service sector (27 percent).

Many leading global brands such as Hilti Corp, ThyssenKrupp Presta AG, and Swarovski, have either headquartered or key facilities in Liechtenstein. Nine LCCI members have created more than 2,400 job opportunities in the Chinese mainland and Hong Kong, say chamber officials.

Known for its personal wealth management, Liechtenstein's banking sector manages 1 percent of the world's total cross-border wealth. The financial sector accounts for 27 percent of its total economy, which is higher than any other nation in the world.

A recent report by global consultancy firm PriceWaterhouseCoopers showed that China is the top target market for global private banks seeking new clients over the next two years.

LGT Group, the largest privately held private banking and asset management group in Europe, and run by the Liechtenstein royal family, is among the companies looking for opportunities in China.

"We do not currently have a private banking office in China, but we would certainly consider opening such an office when the time and opportunity are right," says Vicky Wong, head of key client solutions with LGT Bank (Hong Kong).

"Liechtenstein's private banking expertise is best manifested in its royal family as they have successfully managed and passed on their fortunes for over 900 years," Wong says. The royal family has been rated as the richest in Europe, with assets of more than $7 billion.

"When Chinese families first acquire wealth, they focus on buying material goods or start working even harder, to make their wealth grow even more," Wong adds.

"We on the other hand, urge our clients to take a step back and instead focus on long-term goals. This includes the kind of legacy they want to leave for their family, their country and the world not just now, but 20, 50 or 100 years from now."

Although private banking is still a largely restricted area for foreign financial institutions in China, experts have been urging for more reforms to explore this "hidden treasury" in China.

Guo Tianyong, a professor at the Beijing-based Central University of Finance and Economics, says that China's private banking sector lacks core competitiveness since it is mostly a collection of financial products developed by other institutions.

He says that more trust funds and wealth management licenses should be given to private banks to increase their independent product-development capabilities.

At the same time, Guo says, China's private banks should shift their focus from product to value-added services, especially as China's richest families are now passing their wealth to the second and third generations.

"Europe's private banks mostly developed by serving the royal families, who care less about returns but more on impeccable service. This is precisely what private banks should offer to rich customers in China," he says.

LGT Capital Partners, the asset management arm of the LGT Group, with more than $26 billion of assets under management, has an office in Beijing and is looking to further expand in China.

"We have teamed up with the National Social Security Fund and several other top-tier insurance companies in China," says Frankie Fang, China managing director of LGT Capital Partners.

Ivan Vercoutere, managing partner of LGT Capital Partners, adds: "We believe that the Chinese market will continue to offer an attractive risk-return profile to investors and LGT would be able to play an even more active role going forward."

Tourism is another area that is expected to see major growth, as more Chinese tourists plan diversified European holidays. For Liechtenstein, which covers 160 square kilometers and has 35,000 inhabitants, even a small increase in tourist numbers is expected to create a sizable economic impact, local tourism officials say.

With an eye on this, several shops such as Huber Watches & Jewellery in Vaduz, the capital city of Liechtenstein with a population of less than 5,000, already have sales personnel who can speak Mandarin. This, local tourism officials believe, will prove to be a big hit with Chinese tour groups and customers.

Ernst Risch, managing director of Liechtenstein Marketing, says that many Chinese tourists are now shortening their stay in Switzerland and making shopping and sightseeing trips to Liechtenstein.

"We are sprucing up our facilities further to attract more overnight stays from Chinese tourists," Risch says.

According to Prince Alois, Liechtenstein is looking to extend its cultural ties with China through art exhibitions in Beijing and Shanghai. The Beijing exhibition will take place this month, while the one in Shanghai will be held in March.

Though the main focus of the exhibition is to showcase Liechtenstein's cultural heritage, it also serves as an opportunity to highlight the country's private banking wealth management sector to China's rich.

weitian@chinadaily.com.cn

(China Daily European Weekly 11/08/2013 page21)