Looking east, going west

Having recently returned from a visit to Hong Kong and China to attend a number of major conferences and meet with key contacts in the region, I've had the opportunity to reflect on key private wealth management drivers in the Far East.

Given China's significance in the global economy, financial reform in China is potentially an issue of significant economic consequence in the world today. It's also clear that the kind of financial liberalisation we are seeing in China will create more opportunities for closer cross border cooperation and more business flows between Europe and the Far East - and this is of real interest both to private client professionals in the UK and good quality European International Finance Centres (IFCs).

With China's mass affluent population projected to reach over 14m by the end of 2014 and the nation's wealth management market to hit US$12trn in assets by 2014, demand for increasingly complex and sophisticated wealth management products and services will continue to rise. Alongside the general drive towards Chinese internationalisation, private client requirements are changing, with 46 per cent of Chinese high-net-worth individuals planning to invest in overseas markets within the next three years.

Research from the European China Research and Advice Network shows that, since 2000, Chinese investors have diversified the range of industries in the EU in which they invest. From an early focus on high technology, infrastructure and heavy industry, investment is now growing in the services sector - healthcare, finance, media and entertainment - and coming into liberalised infrastructure sectors, such as telecommunications. According to the Heritage Foundation, the UK has been the most popular destination within the EU for Chinese investment, benefitting from over £8bn in investment in 2013/2014 alone.

What is increasingly clear is that private client business in China is becoming more and more driven by a need for a quality service. As far as jurisdictional choice is concerned, gone are the days of choosing the quickest and cheapest option. In our experience, the Chinese business we are seeing is not by tax driven, but by a need for expertise, knowledge, the availability of a range of structures (companies, foundations, trusts, partnerships), and strong case law.

We're also seeing a lot come out of China recently in respect of tax disclosures, which is leading to private clients more carefully scrutinising their offshore structuring arrangements. Certain IFCs will find it difficult to demonstrate appropriate substance - we're hearing of some banks refusing to open accounts for structures based in certain IFCs - whereas Jersey, with its broad and deep finance industry and infrastructure, is well placed.

As one of the best regulated IFCs globally, Jersey has in place a strong regulatory framework which meets international standards, including making entities fully accessible under Tax Information Exchange Agreements (TIEAs). Such moves are important in Asia, where robust regulation is a major competitive advantage.

At the same time, over-regulation is a concern, particularly when considering European cross-border money movements. The raft of EU regulation - MIFID, EMIR, the proposed Financial Transaction Tax - is a concern for Asian private clients, which is why IFCs like Jersey, which are outside of the EU but instead adopt a 'good neighbour' policy, are proving attractive.

Meanwhile, with increasing amounts of confidential data being exchanged across borders, data security is a real concern in Asia too, and balancing transparency with the legitimate right to an appropriate level of confidentiality has become vital.

Often concerns are expressed around tax information exchange and what can be disclosed to authorities, and it is becoming increasingly important to explain how information exchange mechanisms work. For instance, as far as Jersey is concerned, TIEA communications are strictly confidential between the relevant authorities, 'fishing expeditions' are not permitted, and the requesting country must show that the requested information is foreseeably relevant and cannot be obtained in the home territory in the first instance.

For those private client practitioners in the UK and Europe with an interest in the Far East, there is certainly plenty of opportunity. But to be successful, the focus has to be on quality service levels and high standards of professionalism. For this reason, from a Jersey perspective, I have been enthused by this latest visit to such an important market.

Geoff Cook is the CEO of Jersey Finance

He writes a regular blog about Jersey for Private Client Adviser

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