Chinese cos under lens for secret investment

BEIJING: Hong Kong authorities have unearthed a series of irregularities that resemble the naughty gimmicks of Indian companies registered in Mauritius and other jurisdiction with lax legal controls, sources said. Officials have found that a large number of local companies run operations in foreign countries through an invisible hand.

A large number of Hong Kong companies have been found to be surreptitiously investing in prohibited sectors in foreign countries that restrict foreign investment in certain industry segments. This is done with Hong Kong firms entering into contractual agreements with companies in foreign companies in order to show themselves as local companies, the authorities have found.

At least 30 such cases have come to light during investigations by the Securities and Futures Commission in Hong Kong, but the number of such players may be much larger than what has been revealed so far, sources said. It is not immediately known if some of these companies have invested in India as well.

“The contractual arrangements are complicated and not without exposure to challenge by local authorities, whether legally or administratively.” Hong Kong’s Securities and Futures Commission (SFC) said. The documents have been submitted by the concerned companies as part of applications for listing with SFC.

Hong Kong companies, which are already listed with the local stock exchange, have been obliged to seek a second listing with the SFC under a 2006 law. Applications for second listing has given SFC an opportunity to scrutinise the business operations of many companies.

It has raised objection to 21 of the 26 listing applications it received in the second quarter of 2007, indicating that a number of firms do not comply with the law.