Mainland's high-net-worth investors 'wary of asset woes'
Updated: 2016-11-04 10:13
By oswald chan in Hong Kong(HK Edition)
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How can my assets be better diversified, protected and managed? Can tax compliance laws in investment destinations be made more transparent? Can confidentiality be ensured?
These are among a slate of worries confronting the Chinese mainland's affluent class - both high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals - as overseas investments by wealthy mainland individuals escalated dramatically in the past eight years.
The findings were revealed in a report entitled "The Internationalization of Chinese Wealth 2016" issued by wealth management firms Hubbis and Jersey Finance Ltd - a public-private partnership established in 2001 to promote the financial services industry at Jersey, a British island off the coast of Normandy in France.
Jersey is one of Europe's major offshore financial centers, in the same league with Guernsey and Isle of Man.
"Due to demographic factors, the level of wealth created in China and the renminbi are more popular in the financial market. We see wealthier Chinese mainland clients looking for cross-border solutions for managing their overseas investments," Jersey Finance's Deputy Chief Executive Richard Corrigan told China Daily in an interview in Hong Kong.
According to Corrigan, the total value of assets under management (AUM) at Jersey has reached $1.5 trillion. Although there's no exact figure on how much mainland capital accounts for the company's AUM figure, mainland capital constitutes a very substantial portion and is growing at the fastest pace.
The report is based on the views of 50 industry players in Hong Kong and Singapore obtained through an online survey, one-to-one interviews and a roundtable discussion. The respondents included private banks, trust and fiduciary services providers, tax consultants, law firms and other professional services firms.
"The renminbi's depreciation against the US dollar, investment in unfamiliar markets, such as the asset classes of overseas real estate and financial products, and understanding the implications of inheritance taxes in mature markets, are the specific issues that mainland HNWIs and UHNWIs may face", the report said.
According to real estate advisory firm Cushman & Wakefield, total outbound mainland real estate investments hit a staggering $33.7 billion between 2008 and June 2014 - having grown more than 200 times during that period - in a bid to seek diversification away from record global bond yields to achieve steady and non-volatile returns.
"We see mainland investors' current use of Jersey holding structures as only the beginning as Jersey's real estate holding structure can exempt stamp duty or land tax charges," said Katrina Edge, a partner at offshore law firm Ogier, which advises mainland investors acquiring overseas properties.
Another major concern of the mainland's super rich is the problem of tax compliance amid changing tax laws on the mainland and in other offshore financial centers and investment destinations as they seek to protect their global assets through trusts, foundations and family offices, and even further their philanthropic objectives.
"Confidentiality is also the most acute tax/transparency-related concern among two-thirds of mainland clients in ensuring that tax compliance goes forward," Jersey Finance's Chief Executive Officer Geoff Cook said in the report.
"The Jersey government has made tax evasion a criminal offense and the government also requires service providers to disclose the collected information of those financial beneficiaries upfront. These measures ensure that wealthy mainland clients' interests in tax compliance are secured," Corrigan said.
Jersey signed a tax information exchange agreement with the Chinese mainland in 2010, and a double taxation agreement with Hong Kong in 2014, further enhancing transparency in tax affair compliance at the offshore financial center.
"Jersey plays the role of channeling overseas capital into the Chinese mainland, as well as facilitating mainland capital going out for global investment," said Corrigan.
Last year, US-listed Chinese mainland wealth manager Noah Holdings obtained a license to offer Jersey trust structuring for its 115,000 wealthy mainland clients. In doing so, Noah Holdings became the first mainland wealth management company with a license from Jersey to carry out such business, indicating that an increasing number of affluent mainland investors are seeking overseas allocation and risk diversification.
Continued capital outflow, exacerbated by the yuan's depreciation, has forced the mainland authorities to keep the funds exodus under check although, despite the global economic uncertainties, the world's second-largest economy had reported a steady 6.7-percent growth in the past three quarters of the year.
(HK Edition 11/04/2016 page9)