Chinese Firms Flock To Register Offshore

by Mary Swire, Tax-News.com, Hong Kong

17 June 2004

A senior figure from inside China’s Ministry of Commerce has apparently expressed concern at the number of Chinese firms that are registering in offshore jurisdictions.

According to a report by Xinhuanet, the British Virgin Islands accounted for the second largest source of foreign direct investment in China at US$1.75 billion in the first quarter of the year.

The Caymans Islands also made a significant contribution to China’s FDI level, 20% of which was sourced from three Caribbean nations, the report stated.

Government insiders have suggested that more than 10,000 Chinese firms are registered in the Caribbean region, a statistic Dr. Mei Xinyu from the Institute of the Ministry of Commerce believes is linked to the strict and complicated rules in China surrounding listings on foreign stock exchanges.

However, he also believes that offshore structures could be being used by Chinese state officials to illegally dispose of state assets.

"The offshore drive shows Chinese companies' need to carry out cross-border business but it also leads to unrest for the country's financial security," Mei observed.

The official suggested that the central government should lift controls on the foreign investment activities of domestic firms, and narrow the distinction between foreign and local companies.

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