Two significant regulatory developments have aided the push into the mainland market, say bankers. The first is the new qualified domestic institutional investor (QDII) licensing scheme, which allows banks operating on the mainland to purchase a set quota of foreign exchange to invest client funds in overseas markets. The second is the mainland's World Trade Organisation commitment to remove by the end of the year all restrictions preventing foreign banks from operating local currency banking.

So far this year seven banks operating in the mainland have been granted QDII licences. Foreign banks given licences through their mainland subsidiaries include Citigroup and HSBC. Both received quotas of US$500million, and Bank of East Asia received a US$300million limit.

Among domestic banking giants, Bank of China was granted a US$2.5billion limit, and Industrial and Commercial Bank of China, China's largest foreign exchange bank, was given a US$2billion limit.

Applications for QDII licences from other banks, including Credit Suisse, are being processed.

Andrew Tung, global market manager, China, Citigroup Private Bank, said investment products offered under the QDII scheme constituted a major plank in the offerings private banks would bring to the mainland market.

'Through the QDII quota secured by our parent company, Citigroup Private Bank will bring a range of structured products linked to foreign equity indexes, currencies and fixed-income instruments to the market for high net worth individuals in China very soon. And as regulatory controls are gradually relaxed, our range of investment offerings will expand,' said Mr Tung, who oversees the United States private bank's business development in the mainland.

The range of products offered by onshore private banking operations on the mainland would expand significantly after the government dropped restrictions on yuan banking businesses at the end of the year, Mr Tung said.

Citigroup Private Bank set up an office in March this year at its Shanghai headquarters, and plans to open another branch in Beijing early next year.

'Private banking is seen as a key component of Citigroup's plans in China,' Mr Tung said. 'What we want to do is leverage on Citigroup's existing branch network in China to roll out the private banking services. After the launch of the Shanghai office this year, we plan to open our office in Beijing by early next year, and later in the year are likely to extend our network into southern China.'

A recruitment drive to build a team of local relationship managers has brought 10 new faces to the bank so far. Mr Tung said sourcing local private banking talent in a country where private banking services so far did not exist was a major challenge.

In the absence of experienced local relationship managers, Citigroup Private Bank is drafting people in from the corporate and consumer banking fields to be trained as relationship managers.

'One of our plans is to relocate the people we are bringing on board to our other offices around the world, so they can get a clear idea of how the business works in a mature market and learn about international best practices in private banking,' Mr Tung said.

Another big challenge for private banks entering the mainland's private banking market was to make their services known. Because high net worth individuals in emerging markets were not likely to have much exposure to wealth management, attracting clients would be challenging, according to Capgemini's 2006 Asia-Pacific Wealth Report.

While most foreign banks are entering the mainland private banking market on their own, at least one has chosen to tackle the market through a joint venture with a local partner that will provide access to an established client base.

Royal Bank of Scotland, which led a consortium to buy a 9.6 per cent stake in Bank of China last year, is leveraging on its strategic partnership with the mainland giant to gain first-mover advantages in the wealth management market.

'We do believe we are at the forefront of private banking services in China, thanks to our partnership with one of China's top four banks,' said John Shelley, who leads Royal Bank of Scotland's joint venture wealth management initiative in China.

'From the work we have done with Bank of China, we know they have between 35,000 and 50,000 high net worth individuals banking with them. These will be the initial target group for our joint wealth management initiative.'

Mr Shelley said the new venture would start recruiting soon, and there were plans to open offices in Beijing and Shanghai early next year.

Initially, the wealth management venture would be wholly owned by Bank of China, with Royal Bank of Scotland, Europe's second-largest bank, working as an adviser and as part of the management team. But both banks have signed a letter of intent to convert the business into a Sino-foreign joint venture later on.

'Our products will include cash deposits, structured products and investment funds,' Mr Shelley said.

'We are also working with Bank of China's asset management arm to create more tailored investment accounts. As mainland clients tend to like to be involved in the investment process, this would more likely be active advisory accounts rather than discretionary accounts.'

Mr Shelley said a market survey of high net worth individuals conducted by the Royal Bank of Scotland suggested that many of China's millionaires not only wanted more investment options but were seeking investment professionals to guide their wealth management decisions.

'We conducted a series of in-depth, one-on-one interviews with people with more than US$1 million in assets, which included a number of entrepreneurs, a well-known soccer player, two musicians and a famous TV reporter.

'The respondents felt their range of investment options was very limited, and they wanted more investment choices. But at the same time, many of the respondents had a low level of awareness of the investment options already available to them.

'But what came through most strongly was that the respondents wanted to find a trusted investment adviser because they felt overwhelmed by the amount of information available to them and had difficulty keeping up with the constant changes in China's regulatory environment,' he said.

According to Mr Shelley, 70 per cent to 80 per cent of the clients that private banks were likely to serve in the mainland were possibly entrepreneurs.

This was not uncommon for an Asian market, he said.

What was different about the mainland was that the millionaires there were young, typically in their 30s and 40s, in contrast to the 50s-to-60s age bracket in Hong Kong or Singapore.

'These entrepreneurs will be in an earlier stage of having family, so issues of succession planning will not be high on their list of concerns,' he said.

'Although they will be cash rich, many are likely to be time poor, as they will still be busy running growing businesses. And many will not have sons and daughters old enough to take over responsibilities.'

Citigroup Private Bank has also identified young entrepreneurs as the main target clients, and would be wooing them with a 'holistic' approach to managing their wealth, while leveraging on Citigroup's capabilities in investment banking and corporate banking.

'We don't want to limit ourselves to wealth management solutions but also assist mainland clients with their wealth creation process, so our team will be talking to clients to find out how we can help them with their business requirements - be it in lending, mergers and acquisitions, listing companies overseas or networking with business people from other countries,' said Mr Tung of Citigroup Private Bank.

Anuj Khanna, managing director and head of private banking North Asia, Credit Suisse, said: 'With the sustained growth and transformation of China's economy, there is an increasingly competitive private sector, the rise of a segment of entrepreneurs and professionals, and a growing middle class.

'More mainland private companies are going for IPOs overseas, setting up overseas subsidiaries or engaging in cross-border mergers and acquisitions. These constituencies require increasingly diversified and sophisticated products and highly personalised services,' Mr Khanna said.

According to the Capgemini Asia-Pacific Wealth Report, the mainland accounted for almost 21 per cent of the US$7.6 trillion of wealth held by high net worth individuals in the region, second only to Japan with 46 per cent. Hong Kong came a distant third, accounting for 5.4 per cent of Asian high net worth individuals' wealth.

The Capgemini survey also put the number of high net worth individuals in China at 320,000 last year, growing at a year-on-year rate of 6.8 per cent.

The real market potential in China was in all likelihood even greater than the survey suggested, given that not all people were willing to disclose their true wealth, Mr Shelley said.