Bedell: Kristian Wilson looks at the rationale and use of offshore jurisdictions in the People's Republic of China

In 2013, inflows of foreign direct investment (“FDI”) to the People’s Republic of China (“PRC”) amounted to US$127 billion, making the PRC the world’s second largest recipient of inward FDI after the United States. Slightly behind the PRC were the British Virgin Islands (“BVI”) which had received FDI inflows of US$92 billion, making the BVI fourth in the world. It is noteworthy that not only are the PRC and the BVI among the top four recipients of FDI, there is also a strong relationship between the two jurisdictions in terms of FDI flows. For instance, the BVI is frequently cited as one of the top three sources of FDI into the PRC (together with the Cayman Islands (“Cayman”) and Hong Kong). In 2010, the BVI was the second-largest investor in the PRC, providing US$10.4 billion (9.1%) of total inward FDI into the PRC.

The question then arises as to why a small island located in the Caribbean should be both a significant recipient of global FDI and a leading contributor of FDI into the PRC. This paper will look at the reasons behind this phenomenon, by examining the role of the BVI in structuring inward investment into the PRC and considering how the BVI is used to structure outward investment by PRC enterprises. This paper will also consider other offshore jurisdictions, as well as the role of Hong Kong and Macau (which are often considered to be quasi-offshore jurisdictions) in Chinese FDI.

This article will focus on the use of offshore jurisdictions from a legal perspective and consider the interplay of offshore structures with PRC law. This paper is divided into seven parts. Part I provides an overall introduction. Part II examines key definitions and perspectives. Part III looks at the economic development of the PRC and the context in which the use of offshore structures has emerged. Part IV looks at how offshore structures are used to finance PRC enterprises. Part V looks at how offshore jurisdictions have been used by PRC enterprises to structure their outward investment. Part VI will look at the future role of offshore jurisdictions in the PRC. Lastly, Part VII will make some concluding remarks.

Originally published in Tsinghua China Law Review, 6TSINGHUA CHINA L. REV. (2014). Please click here to read the full article.