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Politics

Hong Kong residency draws interest from China's elite

HONG KONG -- The massive leak of documents known as the Panama Papers suggests that Hong Kong has played a role of connecting China's elite with a global network of tax havens.

Top officials in China's Communist Party are tied to this link via relatives who have established permanent residency in Hong Kong.

Family members of sitting senior party officials have used identification issued by the Hong Kong government to set up investment companies in tax havens such as the British Virgin Islands, newspaper Ming Pao and other media here reported in early May. Those reports are drawn from millions of files from Panamanian law firm Mossack Fonseca leaked to the International Consortium of Investigative Journalists, of which Ming Pao is a collaborator.

The daughter-in-law of Liu Yunshan, a member of the Politburo Standing Committee and fifth-ranking member of the Communist Party, apparently acquired Hong Kong permanent residency in 2008. The daughter and son-in-law of Vice Premier Zhang Gaoli are reported to reside in a luxury property in the city and go by names pronounced in Cantonese. Relatives of former top officials, including Premier Li Peng and the late Deng Xiaoping, have also made Hong Kong their permanent home.

These family members' reasons for obtaining Hong Kong residency are unclear. One financial industry insider speculated that the comparative ease of doing business in the city could be a driving factor, noting that firmer rule of law in Hong Kong than on the mainland makes real estate investment safer.

But an expert well-versed in the use of tax havens pointed out that Hong Kong is often no more than a stopover for funds headed elsewhere. Private banks and other foreign-affiliated financial institutions managing assets for the wealthy abound here, as do lawyers and accounting professionals.

If investors can evade China's strict capital controls and get their money to Hong Kong, it can then be easily forwarded to locales such as the U.S., the U.K. and Australia -- places Chinese authorities' gaze has difficulty penetrating -- by way of shell companies in tax havens. Hong Kong residents can act as financial point men for an entire family.

Elites only

Obtaining Hong Kong residency is certainly not illegal for those from the mainland. Yet it is not an easy process for most. Candidates are required to reside continuously on the island for at least seven years, meaning they and their spouses must work for Hong Kong-based companies. Children of Communist Party officials often meet that requirement by serving at the Hong Kong offices of Chinese state enterprises.

Until recently, resident visas could also be obtained by investing at least 10 million Hong Kong dollars ($1.28 million at current rates) in designated financial instruments, including stocks, bonds and insurance. This path was officially closed to mainland residents, though many circumvented restrictions by first establishing permanent residency in Gambia or other African nations with loose regulations. This system was eventually abolished in January 2015.

Senior government officials, executives at state enterprises and others who have amassed a fortune on the mainland are frequently derided for their tendency to park their families and assets abroad, ready to escape at a moment's notice. President Xi Jinping's crackdown on these figures in his anti-corruption drive has drawn widespread acclaim.

Yet the Panama Papers could muddy the distinction between the anti-graft crusader and his targets, painting top party cadres and corrupt officials as very much the same. Beijing has banned coverage of the documents, painfully aware of the threat close examination could pose to the perceived legitimacy of Communist Party rule.

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