China: Wealth Management
Use of 'Offshore' to Protect Wealth
Since 2005, Chinese insurance companies have been able to invest their foreign currency assets in offshore jurisdictions, which includes funds raised through overseas listing. The companies are issued with 'quotas' for permitted investment, of which up to 10% may be invested in shares of Chinese companies that are issued offshore and listed in stock exchanges in New York, London, Frankfurt, Tokyo, Singapore or Hong Kong.
Until recently there were very few, if any, ways in which individual wealthy Chinese were legitimately able to make investments in Hong Kong, Singapore or other 'offshore' markets, although banks and trust companies had some limited permissions to do so. This situation changed to some extent with the introduction by the China Securities Regulatory Commission (CSRC) in 2007 of the Since the Trial Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors (Trial QDII Measures).
Fund Management Companies (FMCs) licensed under the Measures need to have net assets of not less than RMB200 million, and have been engaged in securities investment fund management business for at least two years. The CSRC is said to have expected about 20 FMCs to gain authorization. They are allowed to invest in equities, debt securities, bonds, bank deposits and derivatives. Property investment is not however permitted, nor is participation in the underwriting of securities.
Although the FDII scheme allows overseas investment in general terms, here also has to be an agreement between China and any specific overseas jurisdictional target.
Thus, for instance, in February, 2010, Malta’s Financial Services Authority (MFSA) announced the signing of a Memorandum of Understanding with the CSRC.
The signing of the MoU is the result of negotiations that started in 2008, and places Malta’s funds industry at the same level with the major fund domiciles particularly in the European Union. It will most importantly facilitate business for financial institutions doing business between the two countries.
Apart from the QDII initiative, the Chinese authorities have been showing increased interest in working with low-tax jurisdictions worldwide. In June, 2010, for instance, a team of seven delegates from the Tianjin municipality in China visited Jersey to discover how the jurisdiction operates as a major international finance centre in terms of policy, regulation, tax, foreign exchange, trade and finance.
Led by Wu Dong, Deputy Director of Dongjian Free Trade Port Zone of Tianjin, the group met with representatives from the States of Jersey, the Jersey Financial Services Commission and the finance industry during their two day visit to the island.
Located in north-east China, Tianjin is the fifth largest city in China in terms of urban land area, behind only Beijing, Shanghai, Guangzhou and Shenzhen.
The visit was arranged by Zhaoan Li, Jersey Finance’s Head of Greater China Business Development, who commented:
“Jersey has made great strides in successfully building its reputation in China over the past few years and this latest visit by key business representatives from Tianjin further reinforces this. Tianjin is one of the fastest growing finance centres in China, and in recent years the private equity fund sector has been developing very fast. The delegates have been keen to learn how they can work with Jersey to foster a strong business relationship especially in the ship and aircraft leasing and financing area, which has seen a phenomenal development since 2009. The delegates were impressed with what Jersey has to offer as a diverse and sophisticated finance centre.”
In order to continue to strengthen relationships between Jersey and China this year, the States of Jersey Treasury Minister, Senator Philip Ozouf, and the Director General of the Jersey Financial Services Commission, John Harris, accompanied by Jersey Finance’s Head of Greater China Business Development, Zhaoan Li, plan to visit Shanghai at the end of June to participate in the Lujiazui Forum. Involving government officials, business leaders, financial institution principals and academics, the Forum aims to develop governmental and regulatory relationships in a post-economic crisis world. Jersey Finance also has a visit to Beijing and Shanghai planned for early November.
Although such relationships are directed more at institutional and inward investment than at individual wealth management, needless to say they betoken growing interest in and awareness of the classical low-tax jurisdictions such as Jersey, Guernsey and the British Virgin Islands, which is said to have been the venue of choice for Chinese to set up offshore companies for many years now.
Guernsey set up a Representative Office in China years ago, and in October, 2010, began dialogue with key government and regulatory officials in China to create relationships for the benefit of the island's financial services industry.
Peter Niven, Chief Executive of Guernsey Finance, the promotional agency for the Island’s finance industry, joined the Lord Mayor of the City of London, Alderman Nick Anstee, for the Beijing and Shanghai legs of the visit.
The trip included meeting again with Tu Guangshao, the Vice-Mayor of Shanghai, who has hosted Guernsey’s Chief Minister, Lyndon Trott, on several occasions, and visited the island towards the end of 2008.
“Travelling with Anstee provided us with another opportunity to strengthen our relationships in Beijing and Shanghai and also reinforced our strong connections with the City of London,” said Niven.
“Indeed, this visit enabled us to show our hosts the complementary nature of the relationship between Guernsey and London and at the same time we yet further developed our contacts in the City," he added. "For example, as well as with Anstee, I was able to build on friendships with Chris Gibson-Smith, Chairman of the London Stock Exchange and Miles Templeman, Director General of the Institute of Directors, and also initiate new relationships with other members of the delegation, including leading practitioners from London law firms.”
Guernsey has had a representative office in Shanghai led by Wendy Weng since the end of 2007.
“Having Wendy on the ground in Shanghai also gave us the opportunity to set-up our own parallel itinerary. This meant that when not attending official appointments as part of the Lord Mayor’s delegation then Wendy and I were able to hold separate meetings with government and regulatory officials,” said Niven.
This included meeting with Dr Fang Xinghai, Director General of the Shanghai Municipal Financial Services Office, as well as meeting with government tax officials and representatives from the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC).
“I also know that Wendy had arranged itineraries for Gerald Hough from State Street, and Alan Chick from the Richmond Group, from Guernsey, to visit finance industry practitioners in the region at the same time I was in China, and it was very useful to meet up with them and exchange ideas about our trips. It is extremely encouraging to see Gerald and Alan utilising the resource that is available to anyone from the island to make their own visits, develop their knowledge base and build contacts.”
Concluding, Niven said: “Guernsey has already built strong relationships with government and regulatory officials in Beijing and Shanghai and this visit was extremely useful in reinforcing them ahead of what we anticipate to be a busy and productive autumn.”
As part of Guernsey’s commitment to tax transparency, the Island’s government and the government of China are making arrangements for a Tax Information Exchange Agreement to be signed between the two jurisdictions in the near future.
In addition, Guernsey’s Chief Minister, Lyndon Trott, will travel to China in early November to sign a Memorandum of Understanding (MoU) with the Shanghai Municipal Financial Services Office.
Guernsey is also continuing to seek approval for its companies to list on the Hong Kong Stock Exchange, has progressed the signing of a MoU with the CBRC and is starting the ball rolling on signing a similar MoU with the CSRC.