Guiding lights

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When approaching anything difficult to ascertain or navigate, seeking guidance is not just helpful, it’s wise. And when it comes to China’s rapidly developing capital markets a compass, or guiding light of sorts, is a necessity. This month, in Capital navigations, we take a look at new developments and trends to point you in the right direction. IPOs have dwindled, but their former vigour has been replaced by an aggressive and government-encouraged bond market as the environment for a multi-level capital market continues to improve. The momentum from regulatory authorities is evident, paving the way for quicker approvals, streamlining procedures and expanding established bond markets to incorporate small and medium-sized enterprises (SMEs).

The government continues to stimulate the market, and a so-called third board is drawing the attention of SMEs. Pilot programmes in Shanghai have been launched, and restrictions on qualified foreign institutional investors (QFIIs) have been relaxed. Foreign investors also await engaging in financing activities as the qualified domestic limited partner (QDLP) programme is in the final approval process.

prologueWhen it comes to exploring offshore, a compass also comes in handy. Adapt and survive looks at how the best offshore jurisdictions are leading the way with regulation and products to ensure compliance with the big blocs, while at the same time continuing to offer investment options that appeal to Chinese investors. The competition is fierce and regulatory pressures introduced by the US Foreign Account Tax Compliance Act and the EU Alternative Investment Fund Managers Directive are demanding. The influence of global regulatory reform on China itself cannot be underestimated and tax reforms that limit the use of offshore structures are also a possibility.

We look at the established players like British Virgin islands, Cayman Islands, Jersey and Guernsey, but also explore some new contenders for Chinese investment. Mauritius and Dubai are both vying for status as investment gateways to Africa, with some success.

Our word to the wise on tax matters for law firms and legal entities in China is a must read. Get ready! explains how the State Administration of Taxation’s new revisions of policy concerning individual income tax on law firm employees may affect you under a new levy based on the audit system of taxation. Different tax rules apply to persons of different status at law firms. The most important message here is to get up to speed with the new accounting practices required to comply with the new requirements as soon as possible.

Finally, we look at the interaction between intellectual property rights and competition law in Protection meets competition. This article looks at the precarious relationship between the two, how the laws work in China, and also draws some interesting comparisons with approaches in the EU and the US. Case studies and scenarios help illustrate the progress and pitfalls in China’s approach. A compass, or guiding light if you will, for the way forward.