White Collar

Hang Seng Bank’s a good start, but Qianhai still needs to go much further to attract big international names

Offering favourable tax rates is not enough – it’s all about future business opportunities

PUBLISHED : Monday, 19 September, 2016, 11:02am
UPDATED : Monday, 19 September, 2016, 11:02am

If Beijing wants to see international investors take Qianhai special economic zone seriously, they must give more national licenses to companies operating there, and not just limit their offer to a select few.

Yes, we have seen some a good number, and some big names move into the southern zone already. But much more needs to be done to make Qianhai as appealing as big cities such as Shanghai.

Setting up in the zone, which is next to Shenzhen, companies can enjoy special tax benefits and more relaxed rules on regulation.

Those meeting certain criteria can enjoy a preferential tax rate of 15 per cent, compared with 25 per cent outside its limits, with qualifying individuals also assessed on a 15 per cent rate, against the standard 40 per cent.

That’s attractive, and we have already seen 100,000 companies register at the site, which is just an hour’s drive from Hong Kong.

The trouble is, although that tax rate might be lower than in other parts of mainland China, it’s still not as low as Hong Kong, where companies only need to pay tax on profit of 16.5 per cent, while the maximum personal income tax rate is 15 per cent, and still only a few employees reach that level.

The attractiveness of Qianhai to Hong Kong companies, is not so much about tax benefits but business opportunities.

Hang Seng Bank will be among the first batch of Hong Kong companies to enjoy the benefits, after last week opening a mutual fund in the area, which will be owned 70 per cent by Hang Seng Qianhai Fund Management. The operation has a registered capital of 200 million yuan, and Qianhai Financial Holding, the financial arm of the Qianhai city’s regulator, will own the remaining 30 per cent.

This is significant, as foreign companies investing in the mainland can normally hold only minority stakes. But this joint venture will allow Hang Seng to hold the majority stake and have management control.

What’s more, with a national license after setting up shop in Qianhai, the operation can sell its products across the country.

It’s certainly good news to see Qianhai offering such attractive conditions to a Hong Kong firm.

HSBC, Hang Seng’s parent, will also be allowed to set up a joint venture securities firm with a majority stake in Qianhai, again allowing it to conduct securities trading business nationwide.

These are good first moves, but we want to see more.

So far, HSBC and Hang Seng are the only two to have been offered majority stakes in a mainland joint venture.

Other foreign firms, including Bank of East Asia, have so far been allowed to take minority stakes in joint venture securities firm, effectively giving them little management control.

For Qianhai to really develop as an international financial centre, it needs more big international firms to be set up there and be granted national licenses.