Three or four years ago, many offshore centres in the vicinity of the UK went on a 'charm offensive' in Asia, hoping to drum up business there and complete the surprisingly difficult task of establishing strong links between offshore centres on different sides of the globe. These efforts are now bearing fruit, as Kate Clouston, Deputy Chief Executive at Guernsey Finance, illustrates by referring to the experience of her own jurisdiction.
Guernsey opened its first representative office in China in 2007, a year in which China's economy grew 11.4% and was poised to overtake Germany as the world's third largest. To help put it in context, 2007 was the year when Apple introduced iPhone, the year after Facebook opened itself up to the wider public with 20 million users (as opposed to the 1.86 billion it hosts today), and Tony Blair was still Prime Minister.
Feels like a lifetime ago, right? Although nobody in 2007 could have predicted the awesomely volatile state of the world in 2017, one bet we were sure of was that an investment in the development of the 'Guernsey brand' in China would eventually prove worthwhile. Ten years on, here's a look at what we've achieved.
Relationship building in China is all about the 'guanxi, 关系'– a deceptively simple term that encompasses everything from individual relationships built upon trust and expectations of the other's behaviour, extending out into a massive network that supports and facilitates business success. Obviously, although the development of a network is a major foundation for any business strategy, it is both much more comprehensive and significantly more meaningful in China.
Good guanxi on its own does not beget success, but it is certain that without it there is no chance. Guernsey has therefore pursued a holistic approach, building a network of local partners through governmental, cultural and industry-led ties.
Nothing happens in China without the Government's blessing, and for this reason it is essential to seek the appropriate Memorandum of Understanding (MoU) to smooth the way for local partnerships to develop. Guernsey has signed MoUs and statements of co-operation with the Shanghai Municipal Financial Services Office, the Beijing Municipal Bureau of Financial Work, the State Administration of Taxation and the Beijing Airport Economic Core Zone to name but a few.
Governmental relationships are vital and work well in tandem with regulatory and industry association ties. The Guernsey Financial Services Commission (GFSC) has signed MoUs with the China Banking Regulatory Commission, the China Securities Regulatory Commission and most recently the China Insurance Regulatory Commission.
On the private sector side, Guernsey has MoUs with the Asset Management Association of China, the China Association of Private Equity, the Shanghai Family Office Union and China's Captive Alliance. These important agreements are essential seals of approval (literally!) for the relevant businesses in each sector, allowing them to feel comfortable when developing relationships with foreign companies. They represent another step towards the removal of barriers between two very different cultures.
Names and branding
Guernsey considered its branding (the process involved in creating a unique name and image for a product in a consumers' mind) in China very carefully – rather than a direct translation of the name for Guernsey, 根西島, we chose instead to use 耿西島, a subtle but powerful amendment. This changed from the name of a simple geographical location to a name rich with additional implied meanings of honesty, trustworthiness and reliability. The choosing of names in Chinese is a very delicate process, for individuals as well as companies. If you are considering working with Chinese clients, consult someone very carefully to make sure you do not simply translate your English name phonetically – a popular example being 'Christopher', which if translated phonetically into 克利斯朵夫 could be interpreted as 'gram benefit this earlobe husband' – hardly an ideal lasting impression!
The Chinese always appreciate a genuine interest in Chinese culture and especially a desire to learn one of China's 52 or so languages. It is difficult to do so but not impossible and any small or even cursory effort to convey a basic greeting or phrase in Cantonese or Wu is extremely well-received. For example, every event run by Guernsey in mainland China is in one of China's many languages.
It sounds obvious, but at the plethora of events run in English in mainland China, the audiences are smaller and less attentive than they would be if they had been run in a Chinese language. Guernsey's entrepreneurs show respect for Chinese culture by using Chinese languages. Anything one can do to remove barriers brings one closer to a long-lasting and positive business relationship.
We have also facilitated a law student exchange between the law firms of Ogier and Duan & Duan, in partnership with the East China University of Political Science and Law – thereby not only increasing business links but also fostering cultural understanding.
Knowledge is power!
Guernsey's worldwide promotional strategy involves the sponsoring of events run by organisations such as STEP, Legal Week and AVCJ, as well as monthly roadshows and a wide variety of 'own-brand' events such as workshops and conferences. Recently, we hosted an event in Shanghai that emphasised the tribulations and opportunities surrounding the Common Reporting Standard (CRS), which attracted more than 200 senior Chinese practitioners from banks, trusts, securities houses and insurance carriers. Guernsey has been adapting its CRS regulations since it signed on in October 2014. Given its long-standing policy of obeying global international standards, its financial sector has overcome some of the uncertainties it has faced and is now in a good position to share its expertise with other jurisdictions.
The event revealed a clear demand for advice about how to obey CRS, which we are giving by running a monthly training course in Shanghai, Shenzhen and Beijing. The course invites Guernsey practitioners to share their expertise and help independent financial advisors (IFAs) and other financiers learn the skills they have to master to operate successfully across borders.
Guernsey is perfectly suited to help people who are motivated by a 'flight to quality'. Not only do Guernsey practitioners have significant international experience and in-depth knowledge of implementation; the tremendous amount of work done by the Guernsey Financial Services Authority in the field of anti-money-laundering (AML) regulation (and in other things) has turned Guernsey into a world-leader in pragmatic regulation of the highest quality. The MONEYVAL report, published in January 2016, was full of praise for the jurisdiction. Guernsey is also one of few IFCs to regulate trust companies, adding an additional layer of safety and scrutiny to a concept still nascent in Asia.
A well-regulated environment is not always a business-friendly environment, but Guernsey strikes the right balance between oversight and flexibility. Over the past five decades it has allowed its financial sector to grow safely and effectively. With more than 150 licensed fiduciaries and more than 700 members in the local STEP branch, it is easy to find an expert in Guernsey with just the right experience needed for whatever unique structure is required.
Some of the specialist services provided by Guernsey's fiduciary sector include the protection and exploitation of image rights and wider intellectual property (IP), aviation services including registration, ownership, leasing and finance, and marine services including yacht importation and ownership, crew management, and insurance.
Guernsey trusts and foundations, including the private trust company and private trust foundation have proven very popular with Chinese clients, particularly with the spectre of inheritance tax looming. Guernsey's very well-established legislative framework and court system underpin the fiduciary infrastructure and allow our experts to create the ideal situation to manage their clients' financial affairs. Long-term asset protection and inter-generational succession is only achieved with proper planning – a resource available in abundance in Guernsey.
Many long-held business beliefs surround operations in China. One is that you will have to open an office there in order to be successful. This is not always necessarily the case, as Guernsey businesses can use our representative office and network to launch themselves into the market and even stay a few steps ahead of the game.
Whatever the manner in which you choose to enter the market, however, you must be prepared for a significant investment of capital – both human and financial. It is a challenge, a work in progress, a supreme learning experience and a fascinating lesson in cultural differences. But more than anything, it is a tremendous opportunity to bring badly-needed services and expertise to a market whose demand is growing significantly day by day.
The original version of this article was first published in Offshore Red, March 2017.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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