Analysis of Trade Partnership Between China and Latin America

Abstract

Research was conducted to study the outward flow of China’s FDI from 2000 to the present. The study focuses on China’s relationship with its tax havens, the British Virgin Islands and the Cayman Islands, and aims to highlight China’s growing FDI trends in Latin America, especially in the CBVI. The CBVI happens to be one of the major destinations for Chinese OFDI. The thesis would aim to examine the early stages of this investment and trade partnership between China and Latin American countries, as well as why the CBVI is the chosen destination for foreign investors. It also goes into the background, features, and figures of China’s FDI outflow and inflow into tax havens. The best applied principle seems to be value added round tripping, which was used to classify the form of OFDI in CBVI. The study also looks at China’s 2008 law, which states that Chinese companies founded in the CBVI would be taxed at a rate of 25% of their overall global income; this may have an effect on future OFDI flows. The unusual consistency of China’s FDI is also addressed, as it has stayed steady even through the crisis and is anticipated to improve over time. The writer presents a single observation at the conclusion of the article.

• Introduction

In 2010, China began growing its foreign investment, especially in Europe, where the rise was as high as 102 percent, and in the United States, where it was about 74 percent. Almost 15% of Chinese businesses have selected Europe as their investment destination rather than Asia’s emerging developed economies (Godement 1-3). The most fascinating and concerning aspect of Chinese international investment is that the British Virgin Islands and the Cayman Islands, both regarded as Latin America’s tax havens, are often the first option among many overseas destinations (Lina 1-5). China spends approximately 14% of its cumulative OFDI in the Cayman Islands, although just 6% goes to the British Virgin Islands (China Daily, 2009). The outflow of Chinese FDI to the British Virgin Islands and the Cayman Islands is so high that it raises the question of why these off-shore locations are so popular with Chinese investors.

There have been many speculations about China’s investment in Latin America although earlier it was not a big concern, but on a closer observance, it is revealed that it is indeed larger than previously thought and in fact it is growing rapidly. Importance of trade in the tax haven was not given much importance earlier as the focus was on China’s role in Africa but the speculation started growing when the visible expansion of trade in CBVI in the year 2004, the president of PRC Hu Jintao made a commitment to invest around $100 billion in the CBVI. It was then, followed by the publication of a policy paper on November 5th in the year 2008. According to the official Chinese data, it is revealed that almost 96.7 % of the total FDI in Latin America went to British Virgin Islands or the Cayman islands (Triplecrisis, 2010). Based on the discussion, the paper is divided in to three main sections. Initially, the historical background of china’s FDI is presented along with a discussion on its acceleration followed by the characteristics of the FDI, and the inwards and outwards flow of Chinese FDI globally particularly in to the Latin American countries. By third section, the paper will begin to highlight its main objective, which is to investigate the financial relations between China and its tax haven namely British Virgin Islands and the Cayman islands, examined through various theories, and its future possibilities are also discussed in the paper.

1. China’s OFDI in Latin America and the general context of Chinese OFDI

• Historical Background

The reform in China began when Deng Xiaoping came in to power; through his efforts he was able to save the country from falling behind. He and his team initiated the decollectivization of agriculture, opened the country for investments by foreign parties, entrepreneurs were encouraged and companies previously owned by the state were privatized. From the period of 1978 – 2010, the growth in the country’s economy was phenomenal and it increased by 9.5 % each year. With these efforts and collective planning, China stood successfully on the second position as the largest economy in the world right after United States. Number of industries rose from being 0.4 million in 1980 to around 8.0 million in the following decade 1990. The Shanghai Stock Exchange was closed by during 1941 with a short period of resumption from 1946-1949. In the reign of Xiaoping, the present stock exchange was opened in the year 1990 on 26^th of November. (Caledonian).

• The rise of Chinese OFDI

According to economist Zhigang, China started expanding its OFDI in 2001 when it joined World Trade Organization (Zhigang, 2011). In 2006, china stood 4th in FDI inflows, the following year it stood on the 5th position, while in 2009 it took second position just after United States. The phenomenal growth of China’s inward FDI has been interestingly watched by economist (Lina 1-5).  The global economic crisis in the year 2008 -09 resulted in a temporary pause in the Chinese OFDI. Following are some important findings considering the rise of China’s FDI, its inward and outward flow during the first decade of the 21^st century.

• In the period from 2002-2010 the growth of the annual OFDI was about 49.9% while the total stock of OFDI was recorded to be $317.2 billion. Japan and United Kingdom were left behind by China in the outflow of FDI and it was a historical record.
• In 2010, it bounced back and this time the annual figures were contributed by developed economies, the global crisis might have been an opportunity where the investments were made and prices were reduced. In 2010, the OFDI of China was recorded to be as $68.8 billion increased by 21.7%. In the non-financial sector FDI reached around $60.2 billion an increase of 25.9%.
• In 2010, the FDI outflows in countries like Cayman Islands, British Virgin Islands, Sweden, United States, Canada, Australia and Singapore were recorded to be as $58.0 billion in fact it was around 84% of the OFDI outflow in totality.
• Business services, mining, wholesale/retail, transportation and financial sectors were among the top most sectors in 2010 in terms of stock and flow. The Outward flow of China continues to diversify ( Zhigang, 2011).
• China has experienced phenomenal growth in these tax havens, in many sectors and hence it is quite evident that the success ratio keeps on increasing each year allowing the investors to keep investing in these regions for future prospects.

Characteristics of China’s OFDI

         Characteristics of the Chinese FDI is studied and a research is conducted to identify the best applied theory for Chinese FDI among various theories of FDI such as FDI aiming for strategic assets, natural resources, FDI seeking large number of cheap labours, FDI seeking market in order to supply their respective products, or FDI theory known as ‘Internalization theory’ which aims to reduce transaction costs, finally an FDI focusing on the mechanism of round tripping which adds value to the county’s capital, this applies best to the Chinese FDI.

Writer XiaofeiLi (Li, 2008) has mentioned the various characteristic of Chinese OFDI as –

1. The very first characteristic is the expansion of ownership of an investing company where the state has the command over the shares. Four types of investing companies have taken the dominant position such as financial transnational group, trading transnational group, the industrial group and the technological transnational group.
2. Another characteristic of China’s outward FDI is the expansion of investment in marketing sectors, focusing on the development of resources. Such sectors include – farming and animal husbandry, industrial manufacturing, transportation, tourism, general trade, real estate, finance, resource development, dining and consulting services. Other than these, Chinese companies prefer to invest more in sectors in which there’s a technical superiority such as in furniture, jewellery, shoe making, textiles and clothes manufacture.
3. The Chinese FDI is focussed in its regional distribution; this characteristic is mainly seen in the developing nations. The various sectors where China is putting its FDI, is getting motivated gradually.
4. The Chinese FDI is also concentrating on the manufacturing and high tech industries such as electric appliance, motorcycles, hardware tools, clothing, and food which are distributed globally. Considering the high tech products, which include communication, software development; photo electric technology and research development electric appliance, they are supplied mainly in developed economies such as USA, Britain, Australia, Singapore, South Korea and Japan.
5. Another characteristic refers to the outward FDI of China which is financed by joint capital. The government has very tight policies when it comes to managing foreign exchange; as a result Chinese overseas investment gets transformed in to joint capital ventures. Since the 21st century, this joint venture has showed a growth of almost 65%.
6. Upon identifying the characteristic of the Chinese FDI, it becomes clear that it is indeed different from any other FDI and China has been playing very smart by following its Go Global strategy. Manufacturing sector is quite popular and fast in production supplies which is why products are preferred in the developed nations too.

1. Description of OFDI in BVI and Cayman Islands

• China’s OFDI in Latin American Countries

How did it all Started

The Foreign direct Investment was the driving force behind the increased growth in the production standards, knowledge and quality in the heavy industries. The question is however to acknowledge the source of the increasing foreign investment in China which eventually made the country; a successful leader among other exporting countries. The answer is – United States, which accounted to the maximum foreign direct investment in China. Other countries have also contributed in the FDI, other than USA. The investment experts realised that in order to raise capital conveniently and effectively, it was important that the company which owned the investment in China would be located in some other parts of the world. That was the reason why British Virgin Islands was chosen to be the perfect location for establishing those companies which hold the investments in China. This historical movement made BVI popular and eventually placed it on the global financial platform. BVI currently houses almost 500,000 corporate companies. According to the People’s Bank of China, FDI reached over $ 105.7 billion in the end of the year 2009(Caledonian).

When the success ratio of this inward investment started to grow and presented substantial results, Chinese entrepreneurs made huge profits which eventually resulted in the growth of economy. China realised that they need to now invest outside their nation. OFDI was present in history but the government actively started its global investment strategy only in 2002. Accounting to the growth of the new global strategy and comparing it with the OFDI present in the past, one can notice the gradual growth. In the period between 1982 -1989 the OFDI was recorded to be less than $ 0.5 million per year while in the year 2009 the growth was recorded to be $ 57 billion which is a miraculous growth. If the total OFDI at the end of 2009 is to be considered, it was even more than $100 billion. Interestingly, almost 47.5 % revolved around CBVI (Cayman and British Virgin Islands). BVI is however positioned as an intermediary between Cayman Islands and China. It is one of the reasons that the OFDI in Cayman is relatively higher than BVI. Cayman Island has also been successful in undertaking the IPOs of the Stock exchange in Hong Kong, which comparatively the companies in BVI have not been able to do it (Caledonian)

Since, the investment by USA in China, the country has been able to explore many horizons in terms of manufacturing, production and supplying in almost every part of the world and emerging as one of the strongest economy globally. The growth in CBVI started to show up in the year 2005 and keep on growing, showing a significant growth by the year 2009. It is likely that this will keep on growing as it has now become the preferred choice of investors.

The Findings: According to Williams (2008), China’s financial relations are increasing with Latin America and these elements are extremely important as a balanced strategy between United States and China. China’s efforts towards reforming its economy and its entry in to the WTO might be the possible reason why the long term bond between China and the US started showing a staggering status since 2001. The attack on the WTC might also be the reason, during 2001-2005 the effect on the economy of US is quite evident and this possible be because of China’s strong desire for its economic reform. While the trade increased in China, its GDP grew. The demand side in US got affected as well as the supply side too. It eventually affected its GDP and employment.

Latin American countries have the opportunity to use China’s rise potentially in order to increase their own self-sufficiency. Peter in his report highlights that Latin America and the Caribbean are the second largest recipient of OFDI from China. It is however interesting to note that only 13 % is from private firms. Almost 99% of the OFDI in public sector was focussed in firms involved in raw materials and energy procurement. Peter further mentions that Chinese OFDI is quite different from other FDI on quality basis, and thus it should be monitored closely as well as treated differently (Peters, 2012).

Since, the growing ambition of China in being the world leader might pose a threat to other developing nations including the US. It cannot be ignored that the Latin America has become one of the largest recipient of China’s OFDI in recent times. It is also revealed that the CBVI islands have a great opportunity to increase their own sufficiency along with the rise of China’s OFDI. 

The critical issue however is that Chinese OFDI in Hong Kong, Cayman Islands and British Virgin Islands in 2003-2009 was about 58%. The official Ministry of Commerce confirms that for the same year the figure was 97% represented by the Cayman Islands and Virgin Islands. The total of OFDI to Latin American countries was around $33.6 billion, while excluding the two havens, the figure amounts to $1.1 billion (Peters, 2012).

According to a book published by OECD, British Virgin Islands and the Cayman islands have been a preferred destination for Chinese investors. The book confirms that almost 80% of China’s OFDI goes straight away to these three locations namely Hong Kong, British Virgin Islands and Cayman Islands. The three major investment portals are also the most popular offshore destination of China’s inward FDI. BVI contributes to around 15% while the Cayman Islands offer around 3% of FDI inflows respectively. Latin America and the Caribbean became the top regional destination of China’s OFDI flows. OFDI share from Latin America and Caribbean accounts to almost 53% (2005) and 48 %( 2006), it overtook Asia in this period. Latin America receives the investments flows from BVI, Cayman Islands and the Bahamas offering around 97% during 2003-2006. China’s OFDI in the end of 2006 was hosted by Latin America by 26.3% and almost 96.4% out of this figure was found in these three offshore regions (OECD, 2008).

The finding reveals that the investment in these off shore regions has shown good results and feasible growth which has made it the favorite among investors. As this document (Sutherland, Dylan et al, n.d) mentions, that BVI and Cayman Islands are the major investors who invested $9.02 billion in the year 2005 while increasing it to $11.2 billion in the following year 2006, accounting to almost 4.9 % and 17.8 % in the inward flows of Chinese FDI respectively.

• Theories to explain why China’s OFDI to CBVI

The Pattern

In the late 1970’s, the doors were open for a modest Chinese OFDI. The reason was the Go Global strategy in 1999 and the South China tour by Xiaoping in the year 1992, it boosted the Chinese OFDI. It has been studied that the outward FDI of China has increased considerably. In the year 1996, China recorded 3.3% of OFDI from developing nations, and its share rose from 10% in just 10 years. Today, China stands as the 3rd largest developing nation when it comes to OFDI , it is counted after Hong Kong and brazil respectively. According to this research (Kolstad & Wiig, 6-9), China invested in 142 countries in just 3 years from 2003 to 2006. Chinese OFDI rose more than 6 times in 2003-2006. The investment was more than 80% in offshore centers such as the British Virgin Islands, Hong Kong and the Cayman Islands. A close examination projects that the largest recipient of the Chinese OFDI are those countries considered as tax havens that are close to China geographically. These places are naturally endowed with resources such as petroleum. They also happen to represent larger market and hence for this reason it attracts investments from China who is in the verge to grow by leaps and bounds every year. Other than the Cayman Islands and the British Virgin Islands, there are other nations which also receive a considerable amount of Chinese investment such as Sudan. Sudan is a poor institutional country and it is also counted as the least democratic nations of the world, ranked as 7th or 8th country in this category. It is also considered to be a hugely corrupted country. As far as the most dominant recipient of the Chinese OFDI is concerned, it is the Cayman Islands and the British Virgin Islands (Kolstad & Wiig, 6-9).

The Economic Factors

Various economic factors are responsible for the growth of Chinese OFDI, some of them are listed below (Hammer & Jones, 1-2)-

• Returns: Investors of China do not have many options. The banks in the country allow a lower percentage of interest, the stock market is unstable and additionally the government has restricted foreign investments. OFDI can become an alternative option for investment if allowed by the Chinese government.
• The Import link: It has been examined that most of the Chinese companies are interested to invest in the sectors that are engaged in producing primary goods such as copper, soybeans, oil, and iron ore. They assist in importing back to china; the demands for such products have been growing because of the improved lifestyle of the middle income group of China. Other than this, the property or real estate market has also experience growth, the infrastructure and the manufacturing sectors are also dependant on such natural resources.
• The expansion: The Chinese companies are known to have offered excellent technological equipments. They are also advanced in sectors like communication, Automobile and alternative energy. They have been seeking opportunities to expand the business around the globe (Hammer & Jones, 1-2).

According to many mainstream theories, following purposes like seeking natural resources, efficiency, market and OFDI aiming for strategic assets can direct any company to participate in foreign direct investment. Firms who seek natural resources are generally looking for products with lower cost which they are unable to get in their own countries; as a result it brings more profit to the company. As far as the CBVI are concerned, they are small offshore islands and they lack in natural resources, hence this theory where FDI seeks physical and natural resources is not considered in this case. Here, one can consider another type of FDI which seeks large number of labors who are cheap, unskilled or semi-skilled yet are quite motivated. The CBVI is a very scarcely populated place hence this will also not be considered. Another type of FDI is which seeks ‘market’, this refers to a company who undertakes FDI because the company has to supply products and services in the market where the investment has taken place. The theory known as of the FDI projects which means that, in order to minimize the transaction costs, agent cost and other charges; companies often invest in other countries. In this theory, the market should be strong enough, with customers and rivals and the export is in huge number but considering these tax havens, this concept seems to be not fitting and hence will not be considered since they are not large market. Considering efficiency as being the purpose for a firm’s investment in FDI, it refers to the expansion of production so that a firm can take advantages in regulations, resource prices and demands by different countries. In conclusion, the FDI which seeks resource, market or efficiency cannot be considered to understand the motivation of firms preferring CBVI (Sutherland & Dylan et al, n.d).

A very apt theory of FDI which best explains the reason why these off shore regions are the preferred choice of investors. It is the mechanisms of round tripping which adds value to country’s capital. They also pay attention to increasing capital of foreign markets. However, through this, company would be able to generate greater value and may even be listed in stock exchange in the domestic market. Such Chinese firms are also hugely benefitted from banks abroad. It is hence clear that Chinese firms prefer such places or tax havens in order to raise capital. The Chinese round tripping FDI in to the CBVI showed a surplus of approximately $16.5 billion during the year 2004-2006.

Round Tripping: The term

According to the Benchmark Definition of foreign direct Investment, the term ‘Round Tripping’ is not openly discussed. Round Tripping is defined as a process of channeling investors of funds directly to SPEs abroad. The succeeding return funds are channeled to the local economy. They are deposited as foreign direct investment (Round Tripping, 1-2).

According to paragraph number 365 of the BPM5 and from the Benchmark definition in paragraph number 39; it is mentioned that SPEs should be considered as direct investment companies provided that they meet the norms of direct investment. Interestingly, the SPEs are traditionally made in offshore centers or economies like tax havens. They might have different purpose but they are an important part of direct investment network. So, the funds from round tripping that flows within the network of direct investment are presently recorded on gross basis as FDI transactions (Round Tripping, 1-2).

According to Chen, round tripping is all about the circular flow of funds out of China and the proceeding investment of the particular foreign funds in China for benefitting from the fiscal economic right attributed to foreign investors. Since the funds are from the host country itself, round tripping increases the actual inflows of the FDI (Chen, 159-160).

According to a report ‘Selling China’, there are two ways of round tripping that has contributed to the growth of china’s FDI. First would be the round trip FDI that inflated the formation of the capital ratio by maximizing the numerator and minimizing the denominator. Second would be the small average of the FDI which may be the function of the round tripping FDI (Selling China, 38).

One possible reason of its round tripping FDI to CBVI might be that it leverages the capital of the Chinese companies. Many firms have migrated to the United States in order to register with the American Stock Exchange. The round tripping in the Cayman Islands is mostly because this region provides flexibility to companies as they can either participate in the American Stock exchange or the Hong Kong Stock exchange. There are many firms who have been publicized by media, nevertheless it is to be noted that there is still no true reason to support why such implications have been executed (Sutherland & Dylan et al, n.d).

 The Chinese OFDI will Grow Continuously

According to Zhigang’research, it is quite evident that the Chinese OFDI will continue to rise in the future. It is possible because of two factors, the very first factor has been projected in a report delivered on 5th of March’ 2011 in the Eleventh National People’s Congress, it refers to the Political strategic factor. This factor lays great importance on the Chinese strategy of going global which also includes improvement in some of the support policies, simplifying inspections, procedures where approval is required. It also lays importance on providing adequate support to firms that are qualified or even entrepreneurs who are likely to be investing abroad. The second factor however is to collect or build up international reserves which was $3.2 trillion in the year 2010(Zhigang, 2011).

China’s OFDI’s Destination: It has been studied through evidences and records that the maximum share of OFDI goes to Cayman Islands and the British Virgin Islands. Chinese OFDI also moves to other destinations via Hong Kong, it also moves back to China by the process of round tripping discussed earlier in the research. Asia is still the most popular location for inwards and outwards flow of China’s FDI if the figures of the tax havens are excluded and the official figures are considered. These are some major destinations (considering ASEAN countries) and in this very order – Hong Kong, Singapore and Macao. In the year 2010, Singapore accounted for almost 42% becoming a major FDI recipient that also includes other countries such as Cambodia, Indonesia, Thailand and Burma( the figures by excluding CBVI) (Zhigang, 2011).

As far as the growth is concerned North America and Europe are the winners over other continents. They have been able to successfully attract FDI from China with the phenomenal year over year growth. Europe accounting to 102% growth whereas North America showed a growth of 72% in the year 2010, even Africa is not left behind and it showed a growth of around 47% in the same year, remarkably rising with 99% growth rate from the previous year 2009. This growth strongly reflects the warm international relationship of China with Latin America who endows rich products. Considering the Oceania the OFDI has not shown a feasible amount of growth, it includes Australia too (Zhigang, 2011).

• China’s Regulations of this OFDI

In the year 2005, China took many measures in order to minimize the use of offshore firms. The Enterprise Income Tax Law has been active since 2008; it says that Chinese firms which are established under the laws of any other country or foreign location they will be considered as companies in China for tax purposes provided that their management system is based in China. This eventually means that companies that are established in CBVI will be considered for tax purposes and will be charged around 25% of their income globally. This new law also imposes income tax on dividends by 10% by an international firm who has a holding firm outside China. This law will discipline the functions of offshore firms (Sutherland, Dr. Dylan et al, n.d). This law possibly might limit the participation of Chinese firms in the CBVI and they might choose to get involve with Hong Kong as no company would want to share their 25% of profit. The future years will eventually present a clear picture of the implications of this law and what changes it brought in the CBVI and China’s trade relations.

Cayman Islands and British Virgin Islands are British territories and their respective legal and financial system is similar to United Kingdom. In the year 1989, a delegation was sent to Hong Kong by British in order to promote international business companies (IBC). This promotional activity was successful and many Hong Kong residents registered under IBC, even today a feasible amount of businessmen join IBC. In fact the flow of capital between Hong Kong and British Virgin Islands is quite in number. Many Hong Kong companies have made it a practice to establish non-operating firms in these tax havens. BVI has been a major recipient of OFDI from Hong Kong in the year 2007 contributing 47.8% of share. It also stood on second position for being the second major inward investor for Hong Kong accounting to 36.6 % of all the investment. This process has been going on for many years and it was possible because Hong Kong companies are quite popular in channeling back the funds to the country or even to other foreign countries as well. According to the official records of China’s OFDI, the figures to CBVI were minimized after the year 2006, on another hand the OFDI to Hong Kong got increased. The research projects that many companies are choosing Hong Kong in order to hold their subsidiary in China while CBVI is being used to channel the activity in the international market (Sutherland & Dylan et al, n.d).Companies will prefer Hong Kong as it has the lowest corporate income tax rate which is 17.5 % as compared to the PRC which has the corporate income tax rate of almost 33 %. Any Chinese company would prefer to sell its products of services to Hong Kong by suing transfer pricing techniques, this would ensure a lower cost and will allow the company to sell the product to a third member from a foreign country by increased prices hence getting good profit in return. This profit gained in Hong Kong can be deducted at a lower cost in the form of taxes as Honk Kong offers lower tax rates.

The Peculiar Quality of Chinese FDI

Davies, in his report has highlighted the fact that although the global FDI might have fallen by 20% in the global recession of 2008 yet the OFDI of China was doubled. He has presented some of the Vitol reasons for this phenomenal growth even at the time of global financial crises (Davies, 2009).

1. One of the first drivers for this type of growth in FDI could be the requirement to secure the natural resources in order to leverage the FDI’s growth. Although China’s most significant field is service sector but its own government has provided the support for the investments involved in resource seeking.
2. China has a strong export relationship with many of the enterprises that are based abroad, while many of the Chinese firms are engaged in export activities in great volumes, it is for this reason that they require insurance and shipment services.
3. Lenovo and IBM are Chinese brands that have acquired international presence and have transformed in to global brands.
4. Some of the large firms (SOE) have lost their popularity in the domestic market and hence they have opted to diversify their business strategies globally.
5. Some of the Chinese firms have preferred to use cheaper labor supply from developing economies like Africa and Vietnam.
6. This suggests that even at the time of recession, the Chinese FDI fails to fall, because of its choice of products and services that the Chinese firms are engaged in. its technological advancements in many electronic equipments is well known, some of the products are exported in large numbers across the world and it is the need of the masses that is fulfilled by the fast manufacturing and fast delivery by these firms. This clearly projects why it doesn’t even fail in recession; in fact it grows as it is capable of producing goods at lower cost by using cheap labors and cheap techniques. People tend to buy things that are needed at lower cost at the time of economic collapse and hence Chinese strategies of Going Global in all the senses, just do not fail.

Conclusion

The methodology was aimed to understand the outward flow of China’s FDI particularly those centered within the tax haven known as British Virgin Islands and the Cayman Islands. The study was initiated with the historical background of the Chinese economic system and its ‘Go Global’ strategy which brought China in to the world trade platform with an outstanding success in just couple of years. The characteristics of Chinese FDI have been studied closely along with its various destinations apart from the favorite CBVI. Chinese legislations in 2008 seem to be shaping up new future possibilities for Hong Kong. The statistical data was presented to highlight the figures of OFDI as well as inwards FDI between China and CBVI, the reasons why it is the most popular destination for investment has also been investigated. After this analysis, it is quite evident that one of the Vitol reason for the OFDI flow between China and tax havens is the value adding round tripping. Cayman Islands and the British Virgin Islands offer flexibility in recording on capital market internationally, and particularly on Hong Kong and American Stock exchanges. The study reflects that there is potentially huge profit coming by investing in to British Virgin Islands and the Cayman islands, because of this reason it is the favorite destination among the investors.

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