China: Wealth Management
Use of 'Offshore' to Protect Wealth
This page was last updated on 1 August 2019.
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.
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.
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.
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.