David He, managing director of BCG, said a conservative economic outlook, the poor performance of almost all assets and waning investor confidence were the major reasons for the market contraction.

But the newly introduced policies also provided impetus for China's private banking sector, "signifying the start of a golden age for China's private banking industry", said He.

As most of the wealth management products currently available in the market are based on net value, instead of promising a specific rate of return, clients will demonstrate differentiated demand, hence requiring private banking service providers to come up with investment advice based on clients' true risk appetite, he explained.

"When high net worth individuals become qualified investors, they will look at more areas and place a higher requirement on institutions' investment suggestions. At this point, the importance and the professionalism of private banking service providers will become even more noticeable," he said.

Mei Yufang, deputy general manager of the wealth management and private banking department at China Construction Bank, said that the bank started its private banking business in 2011. Over time, it became clear that this business is little affected by the economic cycle. On the contrary, when economic downward pressure mounts, high net worth individuals usually place greater emphasis on wealth protection.

Bank of China set up its first private banking department in Beijing in 2007, which marked the beginning of China's private banking industry. Over time, third-party wealth management companies, securities firms, and even fintech companies have stepped into the industry.

With the implementation of government policies on wealth management, and maturing investment preferences, Amanda Wang, head of private banking at HSBC China, said the wealth objectives of high net worth individuals have shifted from wealth creation to preservation and inheritance of wealth.

"Clients are gradually rebalancing from fixed return wealth management products to investments across asset classes, complemented with family trust, succession planning, and other tailored advisory services. Chinese clients generally have a strong affiliation to domestic assets but that is beginning to change. The risk awareness and asset allocation approach are gaining more traction and investors are seeking to diversify their portfolios internationally," she said.

Zi Yuan, head of investment platforms and solutions at UBS Securities, defined the private banking industry as "an emerging industry" in China.

For one thing, China has undergone extremely rapid growth over the past two decades. A large number of high net worth individuals have accumulated their wealth in a short period of time. But now, their attention has diverted from creating wealth to holding on to it and even wealth succession. This is the turning point when the demand for wealth management emerges, he said.

According to BCG, the number of high net worth individuals soared with a compound average growth rate of 21 percent between 2013 and 2017. But the growth rate dropped significantly to 6 percent last year, with the total number reaching 1.67 million. It is projected to reach 2.41 million by 2023.

With the further increase in the number of high net worth individuals in China, demand among them for asset allocation will rise, which is the core of private banking services, said Zi.

"The group's asset allocation channels are still conventional, either turning to banks or investing in property. Some changes have appeared recently, with more of them looking for opportunities in public funds or private equities. It is important for them to approach professional institutions to build a well diversified investment portfolio that includes products with low correlation to the broad equity market," he said.

"In this sense, the asset management and wealth management regulations are pointing in the right direction for China's financial industry in general, showing investors and institutions how money should be managed, used and allocated," he added.

Tang Xiaofan contributed to the story.