Qianhai rush sparks tax haven fears
Grace Cao, The Standard
Easy fund-raising prospects and low taxes in Shenzhen’s Qianhai financial district are making global private equity firms – including the US-based Carlyle Group – rush to register in the pilot finance zone.
And the flood is sparking concerns that the zone is set to become the nation’s “Cayman Islands.”
“Qianhai is a hub for foreign investors to tap the mainland market,” John Gu at KPMG told the Guangzhou-based 21st Century Business Herald.
“Via the experimental zone, overseas PE firms can raise offshore yuan-denominated funds and directly invest into the mainland real economy without the need to seek commerce ministry approval.”
Registered PE firms can also enjoy a 15-percent preferential corporate income tax, said the China national leader for mergers and acquisitions tax.
Shenzhen officials are also considering applying to Beijing for a one-off investment quota for overseas PE firms, allowed to be approved locally.
London-based TDR Capital is among overseas firms to have set up fund firms in Qianhai, while Shanghai-based American firm company Investment is awaiting district approval.
But Gu says: “Without infrastructure facilities in place, foreign PE firms may not have plans to set up office or recruit in the short term, which will hardly fuel economic growth in Qianhai.”
The situation pictured by Gu is very similar to that in the Cayman Islands, a British overseas territory famous for being a tax haven for corporates, the 21st Century report said.
Qianhai is in the second stage of its development as a cross-border yuan center, with large-scale infrastructure construction expected to be completed by 2015, and gross domestic product expected to hit 150 billion yuan (HK$188.8 billion) by 2020.
But BOC International deputy chief executive Tse Yung-hoi sought to allay any fears, telling the paper: “It takes time. Those PE firms will settle down as long as the Qianhai project is built up.”
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