China spends billions to fund Caribbean ambition

China's rising interest in the Caribbean is being backed by billions of dollars in fund flows that are giving Beijing a strategic foothold on the doorstep of the United States.

While loans for infrastructure projects are being extended across the region, boosting China's economic and political clout, funds in the form of outward foreign direct investment are typically finding their way back to China after being rerouted from the offshore financial hubs of the British Virgin Islands and Cayman Islands.

The two jurisdictions account for the bulk of Chinese investment in the Caribbean, with a US government body saying that of the US$62.1 billion in such flows amassed by 2012, all but US$282 million went to the British Virgin Islands and the Cayman Islands.

Excluding the two hubs, Chinese investment flows to the Caribbean amounted to only US$31 million, the US-China Economic and Security Review Commission said, highlighting the growing appeal in China for investments targeted at home and elsewhere in the region to be facilitated through companies set up in the Caribbean centres.

Reflecting the scale of the fund flows, the British Virgin Islands has become the second-largest destination for mainland Chinese overseas direct investment after Hong Kong.

"It is clear that [British Virgin Islands] companies are not only the vehicle of choice for structuring investments into Asia, but also a preferred vehicle in structuring investments out of Asia," said Stephen Adams and Kristian Wilson, lawyers for Bedell Cristin, in a report.