Hawksford's Julian Hayden explains why Jersey is popular for Chinese investors

 

 

 

International investors frequently use International Financial Centres (IFCs) when structuring global investments and business activities. Jersey is undisputedly one of the most highly regarded jurisdictions for marshalling cross-border capital flows.

Jersey has increasingly become an IFC of choice for the effective management of cross-border capital, with a particular upsurge in activity from China. In 2014, around 20% of Chinese companies listed in London were incorporated in Jersey. The growth in the Chinese economy continues, albeit not at the pace of previous years, reflecting increased urbanisation, commercial trade links, and partnerships with other leading economies.

Cross-border investment has a significant role to play in facilitating growth and economic development, both in China and in regions where Chinese investors are active, such as Africa.

International investors including China have historically looked to resource-rich Africa and its high potential for economic return. The strategy has continued into the 21st Century. China continues to look to Africa to supplement its limited natural resources. As Africa seeks to stabilise through infrastructure investment, it welcomes China’s appetite for foreign investment capital.

Stability, integrity and professionalism

To make the most of opportunities in Africa, Chinese investors often look to Western partners who will bring understanding and experience of the political and business landscape of Africa, and provide a robust legal ‘bridge’ between continents. They seek safer jurisdictions as bases for commercial, legal and financial structuring that offer stability, integrity and professionalism; qualities that resonate with Jersey’s offering. It is for this reason that Jersey has built a strong relationship with the Chinese market in recent years.

Jersey has an important role to play in the marshalling and distribution of international capital, combining tax neutrality with other elements of equal importance.

Jersey’s political and economic stability is well known, and it is both respected and well regulated. Jersey boasts a strong banking, legal and accounting infrastructure with a sizeable workforce of first class lawyers, accountants and finance professionals.

The Royal Court is held in high regard; there is a first class judiciary with an international reputation. There is the machinery for the establishment and on-going management of trusts, companies and other entities, and facilities for resolving disputes, with the benefit of independent advice.

The case is strengthened by Jersey’s physical proximity to the United Kingdom. Jersey has years of experience in working closely with the City of London and with the UK’s own banking legal and accounting sectors.

Investment and finance in action

Jersey’s strengths can be illustrated using the example of international investors wishing to undertake an infrastructure project in Africa, working with Chinese companies, or possibly a joint venture with a Chinese company investing in projects elsewhere, such as in Africa – potentially a complex legal arrangement.

The international investors come from different jurisdictions, all with their own systems of taxation. They require external bank finance. If they invest directly in a Chinese company to carry out either of the above activities, which systems of law will regulate the investments, the contracts and the bank loans and how will disputes or even questions of interpretation be resolved?

A better solution would be for the international investors to establish a Jersey company in which they all hold shares and which itself takes bank borrowing. The Jersey company will be subject to the rule of Jersey law and so will its directors. The banking agreements would likely be written under either Jersey law or English law. Good governance of the Jersey company would be the responsibility of its directors, regulated by the Jersey Financial Services Commission.

The Jersey company could then invest either directly or through subsidiaries into a Chinese company for carrying out the infrastructure projects, or into whatever other vehicle was appropriate for the venture in Africa, China or elsewhere.

Funds held within the Jersey company pending investment would benefit from Jersey’s tax neutrality and the mechanisms for the flows of capital interest and income and for the eventual winding up of the holding structure are clear and understood.

Certainty

These factors are persuasive arguments for the use of Jersey. Combining all these elements, Jersey is able to offer a stable jurisdiction in which to anchor international business structures to protect legal risks and facilitate external business activity in other jurisdictions, which may be less stable or where the legal system is less certain. This separates the commercial risk taken locally, from the legal risk where entities can be structured and contracts written in a jurisdiction where the law is certain, independent advice is available, and disputes can be resolved.

Jersey is ideally placed to take a strategic role in the international market place facilitating cross-border trade and finance.

For the full Links with Finance publication by Jersey Finance, please see the Jersey Finance website.