"Buy a $400,000 house or donate $250,000 to Sugar Industry Diversification Foundation, and you will get a passport of St. Kitts and live next door to CEOs of many listed Chinese companies," a man surnamed Feng from Kang Gui International Immigrants tirelessly advocated this small Caribbean island country to a group of entrepreneurs.

Immigration policies constantly change in popular destinations such as the U.S. and Canada, placing more and more restrictions. The rich have to be prudent in their choices. In 2006, the Ministry of Commerce and five other ministries and commissions jointly released "Provisions for the Acquisition of Domestic Enterprises by Foreign Investors" (commonly known as "Document No.10") which stipulates that businesses and individuals seeking red-chip listings are required to obtain approval from the Ministry of Commerce for setting up offshore companies. This leads to the rise of small immigration countries, especially St. Kitts and Nevis, which are popular with Chinese entrepreneurs looking to Hong Kong IPOs.

What is special about these island countries---the so-called "first choices" for CEOs desiring an IPO---that successfully grab the interest of Chairman Zhang Lan of South Beauty, Chairman Feng Changge of Harmony Group and a lot more Chinese entrepreneurs? What is the role of Document No. 10 in the rising popularity of these countries?

IPO-driven immigrants

One-stop service, loose conditions, low investment requirements...These are all advantages of immigrating to St. Kitts according to immigrant agencies. However, they are not the primary concern for immigrating entrepreneurs eager to start an IPO.

"In the middle of 2012, St. Kitts had fewer than 20 people from China. This figure has multiplied a few times now. Some of these immigrants say they are forced to come to the island," said Mr Feng.

In fact, they are "forced" by the climate extremely unfavorable to Chinese companies. In 2013, all China Concepts Stocks listed in the U.S. underwent short selling and IPOs were halted in the mainland market. This makes Hong Kong the first choice of mainland-based companies. However, an unwritten prerequisite for a Hong Kong IPO to happen is that you should be a permanent resident of Hong Kong.

"Currently, most of the countries require that an immigrant should stay for four to ten years within the country and do not allow long-time leave. This is mission impossible for Chinese entrepreneurs occupied with listing-related matters and other business." Guo Xinfei, head of an Internet service company said. He is handling the formalities for immigration in Beijing.

This is partly why Chinese entrepreneurs flock to St. Kitts--- a small Caribbean island with particular immigration policies.

According to Guo Xinfei, St. Kitts is one of the three countries in the world that does not require a long-time stay for immigrants. Among the three countries, St. Kitts is the only Commonwealth nation whose citizens do not need to obtain visas from a majority of countries, which is quite convenient. Besides, tax exemption is applied to citizens' offshore gains, cash-in, inheritance and transfer of equity, which undoubtedly caters to the needs of entrepreneurs. That's why he finally chose St. Kitts like many others did.

"A lot of Immigrants never stay in the island, nor have the leisure to enjoy the beautiful view there. All they need is an identity," Mr Feng told reporters. However, these immigrants feel helpless for two things. Although they are nationals of a new country, they are denied voting rights or rights to stand for election, a defining feature of true citizenship. On the other hand, as China does not recognize dual nationality, when these people have obtained another nationality, it simultaneously signals they abandon their Chinese nationality and any opportunity to hold political titles or positions.

"What's worse, as foreigners you cannot invest in industries important to China's economic growth and people's livelihood, such as mining and energy. This is not what the entrepreneurs want. If they had other choices, they would not have taken this path." sighed Guo Xinfei.

The insurmountable barrier

What makes immigration a common and sole solution for seeking an IPO?

"The answer can exactly be found in Document No.10," said Li Shoushuang, senior partner from Dacheng Law Offices.

It is not surprising for entrepreneurs to seek an IPO to finance their business. But until the release of Document No.10 in 2006, private businesses had been adopting red-chip overseas IPOs in order to avoid the excessive bureaucracy.

"The new policy strikes law-abiding enterprises dumb and leaves illegal enterprises safe and sound, to quote some of the entrepreneurs," said Li Shoushaung, "for businesses seeking overseas IPOs, the policy is like a glass wall. You can see the way ahead, but you cannot move on. On the other hand, none of the enterprises that have managed to be listed overseas by bypassing the bureaucracy and risking the violation of law was ever pursued or punished since the policy came out."

When mainland IPOs were halted and the U.S. market was seriously impacted by short-selling, Chinese entrepreneurs began to focus their eyes on the Hong Kong market. However, much to their disappointment, they found that the almost nonexistent Document No. 10 resurfaced and was like an insurmountable mountain lying before them in the Hong Kong market.

"A lot of clients are discouraged by this and have to choose immigration," an immigration lawyer from Yingke Law Firm told reporters, "some of them have experience in listing in the U.S. and some seek lPOs for the first time. Nevertheless, they are prevented from entering the Hong Kong market."

According to Yang Ping, the Stock Exchange of Hong Kong can say no to mainland-based companies that do not comply with PRC laws. For businesses, this would mean their huge sum of money spent on lawyers, auditors and investment bankers leads to nowhere. It is reported that since the release of Document No. 10, none of the mainland-based enterprises has been approved by the Exchange.

However, these entrepreneurs had not given up. They applied for approval persistently or set up intricate offshore subsidiaries to bypass the regulation, but none of these really worked. In the end, they came to an awkward conclusion that in order not to be bothered by this policy, they would have to turn themselves into foreigners. This is why St. Kitts is so popular with Chinese entrepreneurs.

"There is criticism over what they have done. But only we have witnessed their hesitation and helplessness the moment they give up their Chinese nationality," Mr Feng said.

No-win dilemma should end

"Document No. 10 stipulates that the license for establishment of enterprises with foreign investment, issued by the Ministry of Commerce, stands valid for only one year. But it usually takes clients at least one year and a half to complete private placement and listing. This frustrates some people seeking overseas listing and forces them to immigrate," said Yang Ping. In his opinion, if enterprises cannot decide on their own IPOs, the enforcement of Document No.10 and the government's interference would definitely impose both policy and market risks on them.

Guo Xinfei told reporters that an enterprise seeking a red-chip IPO would basically undergo the following steps: first, mainland-based shareholders establish an offshore company; second, the offshore company takes over a mainland-based company via acquisition or split-off; third, the offshore company applies for an overseas listing following the restructuring.

However, according to Document No.10, the Ministry of Commerce and China Securities Regulatory Commission ("CSRC") would oversee the restructuring process following an acquisition and the overseas listing of the SPV. This in fact increases the difficulty of listing overseas and blocks the path of associated business merger and stock-for-stock merger commonly seen in overseas listing. So far, there is hardly any company applying for approval under this regulatory framework. Instead, entrepreneurs have decided to remove their Chinese nationality as a way out.

According to Li Shoushuang, although quite a few parties were involved in the release of Document No. 10, such as the Ministry of Commerce, CSRC, the State-owned Assets Supervision and Administration Commission, the State Administration of Foreign Exchange, the State Administration of Industry and Commerce and the State Administration of Taxation, none of them came from the regulated side. Without a check and balance from businesses, policies can hardly be operable.

Although the business circle has complained about the restrictions imposed by Document No. 10 on overseas listing, Mei Xinyu, an analyst from Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce said that the Ministry had not made any plan to adjust the policy and that the government would consider fully before fixing a timeline for revision.

China's stock market is currently moving from an approval-based system to a registration-based system. Yang Ping hopes that the government can improve the content and ways of enforcement of Document No.10 in a timely manner to pave the way for businesses to list overseas. In so doing, the no-win situation in which entrepreneurs are forced to change their nationality, businesses are burdened with increased cost of time and market risk, the government loses control over emigrated entrepreneurs and tax cannot be collected from assets transferred abroad can be property addressed.

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