By Baron Laudermilk
Invest In had the opportunity to interview Ms. Karolina Frischkopf, Deputy Head of the Switzerland Embassy Economic Section, and the Investment Promotion Director at the Swiss Business Hub, Mr.Laurent Knecht, about the future of investment of Chinese investors in Switzerland and the status of Switzerland becoming a major RMB center in the near future. Below is an outline of the conversation.
Q: With Switzerland signing America FATCA regulation, many global investors are worried Switzerland secrecy advantages are disappearing. Do you think this is true? And if so, what are some of the other major advantages that Chinese investors can acquire by investing into Switzerland wealth management sector and banking industry?
A: Ms. Karolina Frischkopf: Privacy and data protection are still main assets of Switzerland financial services industry. But we don accept that tax evaders take advantage of our system. We will exchange tax information with some countries bilaterally regarding the international standards. Switzerland other assets are the highly competitive service quality of its finance industry, the internationally diversified know-how, political stability, strong currency and legal certainty and we are a wealthy country in the middle of Europe without any debt troubles.
Q: Switzerland government in 2012 outlined a blueprint that stated that Zurich will become a RMB center by 2016. How will Switzerland RMB center be different and more attractive than London and Luxembourg? And where is the stage of development now on its transformation to becoming a RMB center?
A: Ms. Karolina Frischkopf: The ongoing internationalization of the Renminbi will lead markets for Renminbi worldwide to expand rapidly over the coming years. Several financial centers mainly in Asia and Europe, including Switzerland, are positioning themselves as Renminbi hubs - each one offering its respective strengths to foster this development.
Switzerland is well-positioned in this regard. Due to its leading role in cross-border private wealth management, its expertise in managing institutional assets for pension funds, insurance companies, sovereign wealth funds, family offices and corporates and its niche as a leading center for commodity trading, the Swiss financial sector can support the further extension of Renminbi business overseas and thus foster trade and investment in China.
The Swiss Government is committed to providing the necessary institutional framework for this development. The newly established financial dialogue with China provides a strong base for strengthening financial sector cooperation between our two countries. Furthermore, a currency swap agreement between the two central banks is on its way.
Last but not least, we expect Sino-Swiss trade to receive a boost when the Free Trade Agreement with China takes effect. This should further support Switzerland development as a Renminbi hub.
Q: The free trade agreement that was signed last year between China and Switzerland is a milestone between the two countries governments and corporations. But how will the FTA attract Chinese high-net-worth individualscapital? Also, currently, according to my data, only 60 Chinese companies have set up shot in Switzerland. Has this number increased since the signing of the FTA? What are the number now and the forecasted number?
A: Mr. Laurent Knecht: The FTA will give additional impetus to the economic relations between China and Switzerland by stimulating trade and investment flows between the two economies. Our experience with existing free trade partners (currently 28 FTAs with 38 partners) shows thatdue to the improvedframework conditions and enhanced legal security created by FTAs, trade and investment grew faster with preferential partners in comparison to the overall average. This is also true for foreign direct investment.About 70 major Chinese companies set up in Switzerland and morenew projectsare exploredby Chinese investors (companies & entrepreneurs). Mr. Li Keqiang last year visit to Switzerland and the signingof theFTA certainlyenhanced the awareness of Switzerland as a good business location in Europe toward the Chinese business community.
Q: What are some other major advantages that Chinese investors can acquire by investing in Switzerland? Examples would be investing in real estate, businesses, or even in the banking center.
A: Mr.Laurent Knecht: In many respects Switzerland is a country with many attractive location advantages. This is shown, for example, in research and innovation, in the working conditions, infrastructure, the central location within Europe, in the economic-political environment and the standard of living. The fact that Switzerland is one of the most attractive business locations in the world is also proved by various rankings, which make clear statements about the competitiveness, innovation or the stability of a country. By investing in Switzerland any Chinese company or entrepreneur could benefit from those advantages which will befurther enhanced oncethe FTA between our two countries enters into force, probably in the course of the summer 2014.
Q: What is the future of Chinese investment in Switzerland? Do you see it continuing to expand in the near and long term future? Please elaborate.
A: Mr. Laurent Knecht: Chinese companies are developing at a fast pace and are eager to manufacture more complex products. As a consequence, China is today the third-largest R&D spender in the world only behind the USA & Japan and in this specific expertise Switzerland, as the most innovative country worldwide according to he Global Innovation Index 2013(INSEAD, Paris), would be an ideal location for any Chinese company for a research center. Besides, Chinese ODI to Europe has dramatically increased since 2007. This trend not only concerns acquisitions of European brands, knowledge and technologies as more and more Chinese companies are also present in Europe aiming at developing their activities and benefiting from European high-income consumers. Therefore, Switzerland will welcome moreaffiliates ofChinesecompaniesin the near future as well as see more well established Chinese companies in Europe setting up their regional headquarters in Switzerland which has proven to be a center of global and regional multinational headquarters.