1. What China-related offshore deals have you been involved with in the past year? And what observations do you have on developments in the offshore sector?
“I see a continued increase in the use of BVI companies in China although Hong Kong still remains the dominant market for their use in Asia. In terms of deals, the acquisition of Chinese businesses seems to top the list. One deal involved the acquisition of a hotel in China. I see the use of offshore vehicles increasing in China despite increased regulations due to their inherent flexibility.”
2. Comment on the effectiveness and future of offshore merger provisions for going private deals? (eg. the Tudou-Youku merger)
“Offshore merger legislation is not too complex and has remained consistent over the years. They facilitate mergers between offshore companies and also mergers with onshore companies. An offshore type merger can be quite effective in combining businesses in a way which would be much more difficult in a purely onshore scenario with added benefits.”
3. VIEs have been used by PRC nationals as a way to circumvent Circular 10. Is this likely to continue? What advice are you giving your clients on VIEs, and tightening regulation?
“This is likely to continue for some time despite the tightening of PRC regulations because of the inherent benefits for Chinese businesses. Clients are generally more aware of the increased regulations and scrutiny of deals involving VIEs but you have to also reinforce the point.”
4. How are the roles changing for offshore companies as tools for investing in China, particularly relating to tax reforms?
“The role will continue to change over time but offshore companies will remain relevant for a long time to come. With increased tax reforms the benefits of their use might be somewhat reduced but offshore companies and their flexibility offers structuring options in such a way that no other vehicles can. Accordingly, there will always be some benefit to their use – but then it’s up to the investors to decide.”
5. China has more than half a million HNWIs. How is this wealth being divested offshore?
“Chinese HNWIs are always looking for outside investment opportunities and their appetite has increased especially over the last few years with the reduced value of Western assets due to the global recession. Offshore vehicles offer a great avenue to channel investments of HNWIs for privacy, flexibility and financial reasons.”
6. Offshore intermediary companies are on the increase in mainland China. What are your thoughts on this trend?
“This is actually a good trend. These intermediaries help to develop and drive the market for offshore companies. They speak the language, understand the culture and what works for PRC individuals. This trend replicates the Hong Kong model where intermediaries become a significant driving force in the offshore market.”