Paul Christopher comments in China Business Law Journal

Hong Kong Managing Partner, Paul Christopher, has contributed to an article first published in China Business Law Journal, discussing how offshore jurisdictions are riding the tide of disruptive technology sweeping China and the world.

The story of how China leapfrogged the rest of the world from cash to mobile payments, bypassing credit cards, has been trotted out as testament to the power of disruptive technology. And amid talks of sweeping changes that technological advancements have brought to China, a new regulatory issue has also come into focus offshore.

BVI Limited Partnership Act

Paul Christopher says the act, which was brought into effect from 11 January this year, “provides a new, flexible framework for the formation, operation and termination of BVI limited partnerships [LPs] with or without legal personality. This new vehicle will effectively replace the international limited partnership vehicle introduced under the Partnership Law, 1996.”

BVI and Cayman

As the Belt and Road initiative has created a new phase for Chinese overseas investment, BVI has lost no time adjusting to the opportunity. In October 2016, it signed a memorandum of understanding (MoU) with the government of Tianjin, one of the major port cities along the Belt and Road route, in a sign of its determination to gain momentum from a plan that could essentially reshape global trade and investment.

Christopher believes that “Cayman and BVI will continue to play valuable roles in structuring transactions that support the Belt and Road initiative”. Mourant advised the China-Africa Industrial Co-operation Fund on its US$200 million investment into a natural gas line in Ethiopia. The firm provided BVI legal advice with respect to the fund. It also advised a major Chinese bank on the US$1.7 billion syndicated term loan facility to fund the 1124-MW Kohala hydropower station in Pakistan, a key project along the China-Pakistan economic corridor.

Offshore islands in Europe

The Channel Islands jurisdictions of Jersey and Guernsey have also established themselves as a magnet for Chinese companies embarking on overseas investment and trade into the European market.

Geoff Cook, chief executive of Jersey Finance, says the flexibility of Jersey company law is a key driver for attracting listings business and other corporate structuring opportunities, such as SPVs. “Jersey’s tax neutrality and the supporting advisory infrastructure – including one of the largest workforces of any European offshore centre – is a big draw too,” he says.

Jersey also finds its place in China’s journey to promote the use of renminbi throughout the world and make its currency convertible by 2020. Cook says that Jersey fund and corporate vehicles are attractive propositions for the listing of equity and dim sum bonds. “Jersey is also well positioned to act as a supporting centre to London in the renminbi market, given its market access and experience in currency transactions,” he says.

Guernsey, second-largest of the Channel Islands, has been a centre for international finance for more than 50 years, carving out a name for itself from a robust legislative regime and more than 800 years of independent history to make its own laws and raise its own taxes, says Dominic Wheatley, chief executive of Guernsey Finance.

Banking on the MoUs inked with all of China’s financial services regulators, Guernsey gains traction from this massive potential market that has given the green light to investment in Guernsey-domiciled funds. “Guernsey hopes that these agreements will eventually lead to an agreement for mutual recognition of funds with China,” says Wheatley, “which would mean that funds from each jurisdiction, which meet eligibility requirements, can follow streamlined procedures to obtain approval in each other’s markets.”

China has charted a new course for its “going global” pursuit that is no more akin to the wild west. Wheatley points out that “the issues that Chinese companies have to consider today in looking to operate on an international stage are due diligence requirements and increased standards of transparency”.

Many Chinese companies are still not used to disclosing information on ultimate beneficial ownership, which would be a requirement in Guernsey and is also a vital part of global business, he adds.

Paul noted that Chinese companies need to ensure that they take bespoke advice when entering into overseas transactions. Each relevant jurisdiction, including the ones where a target is located and others used to facilitate the investment, can be uncharted territory, with slightly different risks. “It is vital that [Chinese companies] understand the purpose of the structures they create or invest through, as well as following the advice given on how the structures operate,” he says.