The outlook for Chinese investment into Luxembourg is a positive one, according to lawyers from GSK Stockmann.
This analysis stems from an editorial that GSK Stockmann partners Marcus Peter and Kate Yu Rao wrote for International Financial Law Review, in which they cite double taxation agreements, a robust and fair legal system, and the nation being seen as a welcoming home for foreign investment.
Inflows of money into Luxembourg have accelerated in recent years.
An article last year by Deloitte, A Promising Future’, observed: “[More] than 1% of the total amount of the assets under management (AUM) in the Luxembourg fund industry is invested in RMB assets, representing a total amount of $49.3bn (out of a total of $4.8 trillion). From 2015 to Q1 2019, the amount of RMB assets held in Luxembourg-domiciled investment funds has almost doubled from RMB207.8bn to RMB392.6bn. As of Q2 2019, domiciled Renminbi Qualified Foreign Institutional Investor (RQFII) funds in Luxembourg have already more than €5bn AUM. This amount has surpassed the value of AUM by UK RQFII funds (€39m) and Irish RQFII funds (€597m).”
Dim Sum Bonds
The relationship between the two nations, goes back to 1979 with the opening of a Bank of China in Luxembourg. Since then, Peter and Rao wrote, “[Luxembourg] has become a gateway to the EU for Chinese financial institutions”.
“In 2011, the Luxembourg Stock Exchange (LuxSE) listed the first offshore RMB bonds, better known as Dim Sum bonds, issued in Europe. Since then, the exchange between China and Luxembourg has experienced rapid growth, which means that when Chinese investors plan to list renminbi (RMB) bonds in continental Europe today, the LuxSE is a natural choice.”
ESG and green investment to be a major topic
Writing in International Financial Law Review, Peter and Rao continued: “The outlook for Chinese investment into Luxembourg remains optimistic, despite the slowdown in Chinese foreign direct investment (FDI) into the EU and the temporary change of investment conditions due to covid-19, as we are of the opinion that legal and political stability of Luxembourg’s regulatory and legislative framework, as well as the growing fund industry and financial sector, are still the main considerations for Chinese investors to make investment decisions even during a pandemic.”
They added: “Investments focusing on certain sectors, such as consumer goods and infrastructure, are more likely to attract attention and interests from Chinese investors. Nevertheless, environmental, social and governance (ESG) and green investment is going to be a major topic and one big potential growth in terms of opportunities going forward.”
OECD data suggests that while global FDI flows fell 38% in 2020 due to covid-19, FDI inflows into Luxembourg increased to $62bn in 2020 from just under $14.8bn the year before.
Luxembourg has long been thought of as an attractive space for Chinese investors. In 2019, PWC released a report, Luxembourg, a location ideally suited to Chinese investors, that listed the benefits of the nation.
Among these were that it was European’s largest investment fund centre, had a number of cross-border distribution experts, and had an international and highly productive workforce. Other reasons given included the relatively low levels of taxation for individuals with a gross salary of €100,000.