Offshore firms rouse worry about financial security
(Xinhua)
Updated: 2004-06-16 14:10

The list of Chinese companies conducting offshore operation has included more and more well-known names such as Unicom, TCL and Everbright.

An increasing number of Chinese companies registered at the offshore financial hubs in the Caribbean region, which offers easy procedures for registering a company and imposes little tax and no bar on cross-border capital flow.

In the first quarter of this year, the Virgin Islands was the second largest source of foreign investment in China with an investment of 1.75 billion US dollars while the Cayman Islands and Western Samoa were the seventh and ninth largest ones.

The three Caribbean regions accounted for 20 percent of China's total actually used foreign investment.

Some insiders here said more than 10,000 companies registered in the Caribbean islands are related to the Chinese mainland. These companies would come back to the domestic market with the identity of a foreign investor.

Some Chinese companies took the offshore operation as a short cut to be listed in foreign stock markets since the requirement for a Chinese company to list abroad is very complicated and strict in China, said Dr. Mei Xinyu from the Institute of the Ministry of Commerce.

"The offshore drive shows Chinese companies' need to carry out cross-border business but it also leads to unrest for the country' s financial security," Mei said.

The offshore operation might smooth out illegal transfer of state assets by corrupt officials or managers of state-owned enterprises, he said.

Meanwhile, thanks to loose supervision on companies and high secrecy of company profiles in the Caribbean islands, some companies do backdoor activities to deceive investors.

A listed company will be able to disguise its non-performing assets and debts by removing them to a relevant company set up in those regions where the companies' financial situation will be kept secret, Mei said.

For different reasons, some companies also use this to disguise the real ownership of the company, he added.

Experts suggested the government be more aware of capital flow and the foreign trade and securities watchdogs monitor the offshore Chinese companies.

"It will a tough task for the government to curb corruption done through offshore operation," Mei said.

The government can gradually lift its control on overseas investment of domestic companies and minimize the difference between policies for foreign and domestic companies, he said.

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