Barclays said China is likely to tighten oversight of offshore assets further to close long-standing tax loopholes, ease fiscal pressures, strengthen capital flow management, and retain savings within the financial system, rather than reverse its open-door economic policy.
China’s measures this year on offshore wealth, including taxing offshore insurance returns, offshore trusts, and cracking down on cross-border brokerages, aim to address fiscal pressures, rising outflow risks, and boost domestic savings for better capital allocation, according to a recent report conducted by Barclays’ senior China economist Zhou Yingke and other analysts.
Barclays believes these impacts on Hong Kong’s financial market are manageable, as offshore trust and insurance assets related to mainland investors are estimated at around US$500 billion (HK$3.9 trillion), compared with Hong Kong’s total assets under management of approximately US$5.4 trillion.
It said a majority of China’s offshore wealth is structurally located in Hong Kong, which accounts for approximately 61 percent, Singapore at 13 percent, and the rest are in other traditional offshore wealth hubs such as the US, Switzerland, the British Virgin Islands, and the Cayman Islands.
Among these, Chinese technology, internet, and manufacturing sectors benefit most from listing offshore. Barclays noted that founders and shareholders of these sectors have accumulated their wealth from setting up offshore investment funds, family offices, insurance, and investment funds.
Barclays expects Chinese authorities to broaden the regulatory scope to offshore revenue from exports, overseas investment returns, offshore property income, estate duty, and inheritance tax.
Barclays said China’s tax measures on offshore trusts and insurance align with reforms in the US, UK, and Japan, adding that such policies increase the tax base, transparency, reduce tax arbitrage, and lower capital outflows driven by taxation.