Global corporate structure of Chinese state-owned financial institutions through Hong Kong

This article applies a new investigative technique called 'equity mapping' to the corporate structure of two big Chinese state-owned banks, Bank of China (BOC) and China Construction Bank (CCB), to advance our understanding of the way they use their Hong Kong subsidiaries and holding companies to support their global and domestic strategies. We show that Chinese state-owned banks typically set up a 'sandwich' structure of holding whereby a Hong Kong subsidiary holds a British Virgin Islands or Cayman subsidiary which, in turn, holds a publicly listed subsidiary in Hong Kong. The subsidiary holding company in Hong Kong serves as the bank's face to the world. Indeed, these subsidiaries often control subsidiaries in mainland China, and in that way, state-owned Chinese banks operate as foreign banks on the mainland. This structure can be used to avoid taxation in different regions despite restrictive mainland financial regulations. In addition to creating a formal structure that emulates the legal and corporate governance structure of Western banks and companies, these Chinese banks establish a dual pattern of ownership organizations through personal links and named trusted directors to build an informal structure with 'floating' subsidiaries in offshore financial centres.