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China Loosening Controls on Capital

For years, a major barrier to foreign investors doing business in China has been constraints on the movement of capital in and out of the country. Finally, changes made by the Chinese government may mean better times are on the way. On April 13, the Chinese authorities announced a series of measures compiled under the new Qualified Domestic Institutional Investor (QDII) scheme to loosen the government’s controls over national capital accounts. The introduction of QDII signals China’s first step in reforming its capital policies, and to better position itself as a flexible and accommodating location for foreign and domestic enterprises to do business.

For the first time in China, QDII enables mainland banks, insurance companies and fund management firms to invest a specified percentage of their Yuan and foreign currency holdings in financial products from foreign markets. The Chinese government’s move signals an important step forward in the reformation of China’s foreign-exchange administration regime. The measures listed under QDII may finally be a signal that Beijing is willing to further integrate China’s capital market into the global financial platform.

In addition to QDII, China has also issued rules on offshore investing and eased rules on foreign exchange purchases in April. Furthermore, China’s massive foreign exchange reserves of US$870 billion, which have overtaken Japan as the world’s largest in March, has added pressure on the Yuan to appreciate. Combining this with the effects of China’s compliance with the WTO to open up the country for foreign investment in 2005, it would not be unusual to see the Chinese authorities further loosening control on its capital accounts.

Foreign investors who operate businesses in China may be about to enjoy a much higher degree of flexibility. Since the rules allow domestic money to seek global investment opportunities, Hong Kong will benefit as mainland investors can now engage Hong Kong financial institutions that possess rich international experience and professional knowledge in making global investments. It should also be kept in mind that QDII is merely the first step in the opening up of China’s capital markets, and going forward, there are hopes that the pace and magnitude of reform will quicken in the future.

Keep watching this space!
 

TRADE

Hong Kong

Hong Kong And China Signed Joint Statement On Converging Accounting Standards

Accounting authorities from Hong Kong and China signed a joint statement on accounting standard convergence on May 12th. Although it was agreed that material progress had been made in converging accounting standards for both sides in recent years, the move may help increase international investor’s confidence on accountants from the Mainland and Hong Kong, and assist Mainland companies to raise funds. Read more...

Hong Kong Ranked Second In Super Growth Companies Index

Hong Kong was ranked second in the Grant Thornton International Super Growth Index with 34 percent of its companies classified as super growth. A “super growth” company is defined as one which has grown considerably more than the average measured against key indicators including turnover and employment. Read more...

China Unveiled Action Plan To Combat IPR Offences

The Chinese State Council unveiled the IPR Protection Action Guidelines (2006-7) to tackle intellectual property rights violations in China. The Guidelines aim to strengthen the existing regulations right down to the street level. Read more...

China Takes Big Leap In Competitiveness Ranking

The Switzerland-based International Institute of Management Development (IMD) has leapt China’s competitiveness ranking to the 19th place from its 31st place one year ago. The IMD’s annual ranking this year compares the economic performance with the efficiency of each government in areas such as budget deficits and red tape. Read more...

Yangtze River Delta Absorbed Almost Half Of China’s Foreign Capital

The Yangtze River Delta has used 47.8 percent of China’s total foreign capital. More than 400 of the world’s top 500 companies have established a foothold in the region. Major cities in the delta include Shanghai, Hangzhou, and Nanjing. Read more...

Asia To Produce Roadmap For A Common Asian Currency

China, Japan, and South Korea have agreed to form a joint research team this year to produce a roadmap for the creation of a single currency for Asia, similar to the Euro, to promote financial integration of the region. The concept of an Asian Currency Unit (ACU) has been discussed since the Asian financial crisis to insulate individual economies against volatile swings in the value of the US dollar. Read more...

EC To Formulate Trade Relations Strategy With China

The European Commission launches a public consultation exercise on a strategy for trade and economic relations between the EU and China. The Commission will assess the future challenges in relations with China and outline EU policies to maximize the opportunities offered to EU businesses from the economic rise of China. Read more...

TAX

Hong Kong

Hong Kong’s Economic Boom Is Responsible For Tax Revenue Windfall

The Hong Kong Inland Revenue Department recorded a HK$145 billion (US$18.59 billion), in tax revenue for the fiscal year 2005/06, an increase of 14 percent over the previous year. Authorities commented that the strong results were surprising and concluded that the rise was largely attributable to a rebounding economy, strong company performances, and a soaring property market. Read more...

US-Guernsey Signed Tax Information Exchange Agreement

The United States and the States of Guernsey signed an exchange of letters on March 30 2006, allowing information on tax matters to be exchanged between the two countries. This was seen as a positive move for Guernsey to remove its label as a “haven” for tax avoidance purposes. Read more...

US IRS And States Agree To Attack Money Laundering

The U.S. Internal Revenue Service (IRS) has announced agreements with 33 states and Puerto Rico to a Bank Secrecy Act (BSA) for the sharing of information. The IRS and participating states will share information and leverage their resources to ensure compliance from money services businesses (MSBs). Read more...

EU Member States Move Forward On Anti-Money Laundering Measures

The Prevention of Money Laundering and Terrorist Financing Committee, which is composed of EU Member States, agreed to the European Commission’s formal draft of technical measures for implementing the Third Directive on the prevention of money laundering and terrorist financing. Read more...

Isle Of Man Recorded Sharp Fall In Offshore Deposits From Ireland

The Isle of Man government reported that individuals resident in Ireland have withdrawn a huge amount of their offshore deposits out of the island. As figures reveal, the deposit amount made by Irish in the IOM has decreased by 50 percent. It is believed that the aggressive pursuit of tax evaders by the Irish tax authorities in recent years has attributed to the dramatic decline. Read more...

Mauritius To Amend Anti-Corruption Legislation To Combat Money Laundering

Mauritius is looking to tighten its anti-money laundering regime after a survey revealed that the jurisdiction was vulnerable to money laundering. The Prevention of Corruption (Amendment) Bill 2006, which was presented for its first reading in the National Assembly, aims to permit the restructuring of the Independent Commission Against Corruption as a major partner in combating money laundering. Read more...

Cayman Islands To Increase Stamp Duty On Property Purchases

The Cayman Islands is to introduce a new-tiered rate of stamp duty for real-estate purchases. The stamp duty will be increased to 6 percent and 7.5 percent, in certain areas of the country, from a previously reduced rate of 5 percent. Whilst introducing a special rate of 4% stamp duty for property bought by Caymanians. Read more...