By Baron Laudermilk
Despite the United Kingdom decline in world prominence, London is still a financial center in a league of its own. Although New York, Tokyo, Singapore and even Shanghai are starting to become world financial centers, they all have a long way to go before they reach the level of expertise and financial infrastructure that London has.
London has become the world most powerful financial center because of its legal infrastructure, its depth of expertise, overall economic stability and steady growth. It is home to more international banks than any other country in the world (241) and boasts the world biggest foreign-exchange market, and the largest market for interest-rate derivatives, with more than $1.4 trillion in daily revenue accounting for 46 percent of the world total. Its connections with the world financial hubs, its global reach in the domains of business and finance, have made, and still make, London the world premier financial center.
Chinese investors have historically been investing much of their money in the United States, but the enormous amount of lucrative opportunities in London should not be overlooked.
London financial hub, talent, and international companies
England financial center was launched based on a lightly regulated banking industry and, with several economic business clusters that use each other for legal and accounting advice, even specialist marketing advice, a fertile environment that has stimulated innovation was created in London.
Just twenty years ago, East London Docklands were a wasteland, but now it contains Britain tallest skyscrapers and provides an area for global banks to trade. This boom results from its revolution in its security market twenty years ago.
The city began this revolution in the 1960s when it decided to defy history and allow foreign banks and businesses to run virtually unregulated in the market. So when New York began to catch up with London, it stagnated its growth by having a ceiling for the dollar interest-rate. While the United States simply used the dollar to trade with, London was using many offshore currencies.
Underpinning London financial center is its ability to attract talent. Firms who have historically migrated to London have done so because they can tap into domestic and foreign companies that have a diverse set of contacts and skills. Unlike Shanghai, Singapore, and New York, that are still quite regulated, London has done its best to leave banks and foreign-companies alone, unless a situation becomes dire, such as the 2008 financial crisis. London is now so tangled into the world various markets and economics, it will be difficult for London to be dethroned by Asian or even the U.S. financial hubs.
The UK Finance Friendly Budget 2012 and its effects on Chinese investment
Parliament and analysts are still disputing UK Finance Friendly Budget 2012, however, it is clear that it will lower taxes for corporations and encourage international investment. Chinese investors will now be taxed less than in the past if they establish a business in the UK, and they will have more opportunities to penetrate the country markets.
UK chancellor, George Osborn, is attempting to spur international investment and trigger a wave of hiring by cutting the main rate of corporation tax by 2 percent to 24 percent. Osborn said in a public statement that these cuts in taxes for the wealthy are friendly towards businesses and can help stimulate the country economic growth.
The new budget also lowers income taxes for the country highest earners. For Chinese HNWI who are looking for a place to start a business, and to be taxed less compared to other European nations, the UK is becoming more competitive with its tax cuts on both corporate and income taxes.
But the reduction on taxes from the rich in the UK will be countered by taxes on other assets and by closing loopholes in the legal system. A close read of the 2012 budget shows that property taxes will be increased, and that the UK will begin clamping down on tax-avoidance schemes.
However, John Whalley, the director of the center of the study of international economic relations at Western University, who has written extensively about the UK tax system, told Invest In that the closing of UK loopholes would actually help Chinese investors invest in the UK.
K budgets have repeatedly attempted to close tax avoidance schemes only for new ones to emerge. As far as Chinese individuals are concerned it is important to note that measures are largely aimed at UK residents using offshore investments rather than non-residents using UK investments. To the extent these policies discourage offshore investment by residents and encourage home investment may be positive for prices and even aid Chinese investors in the UK,Whalley said.
Registering Companies in London: Fast and Easy
Registering a foreign company in the UK is not a difficult task. Companies must be registered as an overseas company in the UK and register documents with the Companies House, which registers, dissolves, and incorporates companies in the UK. Partnerships and unincorporated bodies, however, cannot register as an overseas company in the UK.
Overseas companies who want to operate in the UK must register as a K establishment Within one month of operating, the company must provide Companies House with four forms. The first form is called OS IN01, you can download it from the Companies House website. The second form is a £20 registration fee. The check should be made payable to ompanies House.The third document that must be provided is a certified copy of the company constitutional documents. If they are not in English, they must be translated. Finally, one must provide a copy of the company latest set of accounts.
Suwei Jiang, a partner at Price Water House Coopers, said that setting up shop in the UK is fairly easy, but Chinese companies may face difficulties as the procedures in the two countries are vastly different.
he registration process in the UK is quite straightforward,Jiang said. t involves registering with the Companies House, which can be done within 48 hours, followed by registration with HMRC for corporation tax purposes. Companies can also voluntarily register for VAT. All of these are best done with the assistance of a professional services firm that can then also provide ongoing support around company secretarial matters and tax matters./p>
lthough the UK company registration process is relatively simple,he continued. he requirements in the UK are significantly different from those in China. Therefore to fully understand the implications of different forms and information provided is still a challenge for most Chinese companies./p>
London developing Rmb center
In January 2012, Chancellor Osborn announced that the UK and Hong Kong had decided to establish a joint private sector conference to enhance cooperation between the two countries and support the Chinese central government efforts to further develop the offshore market for the renminbi. Osborne has been pushing for the idea of making London into an offshore center in many speeches and statements. The UK is increasingly using the currency for transactions with Chinese companies, and in April, HSBC launched a bond dominated by renminbi, indicating its growing and importance in the UK economy.
David Wang, the lead investment strategist at BlackRock Ishares Business, a global product leader of ETFs, said that HSBC releasing these bonds is a major step for London becoming a global Rmb trading hub.
his is a significant step towards the right direction,Wang said. f others follow HSBC's example, then London can very likely become the dominant trading center of RMB outside of Asia. As China opens up its capital account, the need for an offshore RMB trading center outside of Asia would surely increase as well. If the right steps are taken at the right times, London can evolve into an RMB trading center no less important than Hong Kong or Singapore./p>
In the fourth quarter of 2011, London accounted for 46 percent of renminbi foreign exchange transactions completed outside of Hong Kong and China. Furthermore, London accounted for 30 percent of renminbi payments sent and received outside of Hong Kong and China, according to Society for Worldwide Interbank Financial Telecommunication (SWIFT), a worldwide financial messaging network which exchanges messages between banks and other institutions.
London is currently in the position where it could become one of the largest offshore Rmb hubs. London has one of the biggest foreign exchange trading platforms in the world, and has the largest foreign trading market in the world. Banks from around the world, including HSBC and Standard Chartered, are predicting that London will be one of the largest offshore renminbi hubs by 2020.
But there is still much work to do. The UK treasury officials are now in the process of studying Chinese regulations, products, and opportunities about the renminbi, which is the first step towards understanding how the relatively closed system works. Another major milestone London crossed was that it extended its operating hours of the renminbi payments systems (15 hours, from 8:30am to 11:30pm Hong Kong time).
But one of the main problems is that it needs to create a sufficiently large enough liquidity pool for the currency trade to work in London.
Although London has some legal and liquidity obstacles, it can leverage its competitive position as being the world largest offshore USD markets and foreign exchange markets to be the western financial hub for the Rmb center.
London diverse workforce and its business ties with the world will continue to attract the brightest and most ambitious investors in the world. The ease in starting up a business, and the slow creation of its Rmb offshore center will enhance and strengthen London position as the world most prominent offshore center. Chinese investors should eagerly be looking for investment opportunities in London, as they are safe, stable, innovative, and lucrative.
SIDE BAR: Listing IPOS in the UK and the US: Differences and Similarities
Making your company go public can be a very tiresome yet rewarding process. In both the UK and the US, going public involves lots of patience, time, money, and paperwork. However, there are small differences between the two processes that may affect an investor decision where to go public. Which place is easier to go public, the U.S., or the UK? Can a company really raise a lot of money going public, and in which country can a business raise more money? These are all questions that many HNWI Chinese business tycoons and venture capitalist are struggling with today. Invest In has found a world-renowned expert in initial public offerings (IPO) to tackle some of these very difficult questions.
Jay R. Ritter, a professor of Finance insurance & Real Estate at the University of Florida, who has spent more than 40 years intensively studying and writing about IPOs in both the UK and the United States, sat down with Invest in to talk about the differences between listing an IPO in both countries, and their pros and cons. The differences between them are enlightening and insightful. Ritter advised:
oing public on London's AIM is relatively easy, providing that the shares are sold only to qualified institutional buyers. Most IPOs in London use this procedure, in which a nominated advisor (known as a "Nomad") is responsible for vetting the company./p>
POs using this procedure raise only a few million pounds. Some of the statistics and further details are provided in "Europe's Second Markets for Small Companies," coauthored with Silvio Vismara and Stefano Paleari, to be published in the June 2012 issue of European Financial Management./p>
or IPOs that are sold to the general public, the procedures are much more similar to those in the U.S., although the investment banking fees in London tend to be lower than those in the U.S. For a moderate-size IPO, raising from $30 million to $150 million, the fees in the U.S. are almost always 7.0%, whereas in London they might be 5% for a $30 million offer, 4% for a $100 million offer, and 3.5% for a 150 million offer,said Ritter.
Both the United States and London IPO procedures are straightforward, and both require money, time and advice. However, if you are interested in saving money, and keeping fees low, going public in the UK is by far cheaper than the U.S., especially if you are talking about raising millions of dollars.