Duncan Smith, a partner at Ogier Hong Kong, a law firm which advises firms on overseas listing, says that, previously, Hong Kong had been the only major financial centre with a 'restricted list'.

He says that for some time, major exchanges, such as the New York Stock Exchange, London Stock Exchange and AIM, and the Frankfurt Borse, have allowed a range of companies to list, including BVI. 'From that perspective Hong Kong has come in line with other major financial centres,' Smith says. He says it will help maintain Hong Kong's superiority over Singapore as the No 1 capital raising centre in Asia.

Mainland companies registered in offshore tax havens are recognised as foreign direct investments. This means they qualify for favourable income tax rates of as low as 10 per cent and tax incentives on the mainland.

These tax benefits are the main reason some domestic enterprises want to become foreign companies, tax experts say.

But in the past, the lack of transparency has been a concern, because the share register of a private BVI company is not open to inspection. But Andrew Lam, an assurance partner at consulting firm Grant Thornton, says that the Hong Kong stock exchange has put in place tough screening processes for companies registered in BVI.

'One of the main points for the listing of these companies is that the transparency will be enhanced. The protection of the shareholders will be of paramount importance for the exchange,' Lam says. Previously, some exchanges had not permitted companies incorporated in tax havens, such as BVI, Jersey in the Channel Islands and the Bahamas, largely because of disclosure issues that did not allow the opening of a private company's share register.

The number of overseas jurisdictions that Hong Kong-listed firms can be incorporated in has risen to 10 following the addition of BVI. But there is a call from overseas law firms that more jurisdictions, such as Jersey and Bahamas-registered firms, to be allowed to list in Hong Kong.

Market observers estimate the number of offshore companies registered with BVI last year at 65,000, while the Cayman Islands had more than 14,000 and Bermuda carried about 1,200.

Listing lawyers say it was no surprise that the Hong Kong would add BVI to its list, given the heavy lobbying from some of the BVI-incorporated mainland companies.

'A lot of Chinese companies are registered in BVI and can now look to listing in Hong Kong. As they are already BVI registered, to use BVI as a listing vehicle would mean they do not need to go through an expensive restructuring exercise to list,' Smith says. 'The stock exchange always wants to encourage more listings and it was only a matter of time before it allows other jurisdictions.'