Hong Kong’s government has suspended a scheme to bring high net worth individuals into the Asian jurisdiction, taking effect from today until further notice.

Hong Kong’s government has suspended a scheme to bring high net worth individuals into the Asian jurisdiction, taking effect from today until further notice. The move contrasts with the actions of some other jurisdictions seeking to attract wealthy foreigners.

A statement from the Hong Kong Chief Executive gave no reason for the suspension to its Capital Investment Entrant Scheme. Withers, the law firm, said it had been halted because of “excessive demand” from Mainland China.

“The Immigration Department will continue to process applications received on or before 14 January 2015, whether already approved (including approval-in-principle and formal approval) or still being processed,” the Hong Kong government said in a statement on its website.

As at 30 September, 2014, a total of 24,481 approvals had been granted under the scheme, out of total applications received of 40,392; Chinese nationals made up 21,822 of formal approvals granted, with 363 from Taiwan; 362 from Macao, 1,931 from other foreign nationals, and 3 from “stateless persons”.

"The CEIS was created in 2003 during the nadir of the post-SARS Hong Kong economy.  However, in the wake of the global financial recession, a 'tsunami' of Mainland Chinese capital flooded the territory, subsequently making the program less relevant.  The C.Y. Leung administration is focused more on attracting foreign entrepreneurs and other talents, rather than just investment," Mark Lanning, director of immigration in the Hong Kong office of Withers, said of the Hong Kong decision, said of he Hong Kong decision.

"Almost 90 per cent of applicants to the scheme are Chinese with foreign permanent residency.  Previously the requirement of a foreign permanent residency created a cottage industry of permanent residency investments in lesser-developed countries like Haiti or Gambia," he added.

The decision to halt the scheme in some way mirrors the move by the Canadian government last year to suspend its investment visa programme, where the government said quotas had been exceeded. Ironically, many applicants for Canadian visas had been from China and Hong Kong. Other countries, meanwhile, have rolled out or reformed their investment visa programmes, such as Spain, Portugal, the UK and Malta. Typically, governments have used such schemes to encourage inward investment, although the issue of wealthy foreigners buying properties in some states, such as the UK, has come a hot political issue amid fears about rising residential prices. (Recently-issued data shows sharply rising Chinese demand for UK visas, for example.) Lawyers at Withers, for example, say the fact that some countries are shutting down these programmes will drive more such applications to Europe.

It is possible that one reason for the shuttering of the Hong Kong scheme was the pro-democracy protests that have unsettled Hong Kong - and worried its banking sector - in recent months, because the government feared that an influx of Mainland Chinese might upset the existing population concerned about political pressures from the Mainland.

According to the scheme’s existing rules, applicants will be accepted if they put in at least HK10 million in investment in permissible assets made within six months immediately before the application date and such applications are made within six months of the investment. For applications on or after 14 October 2014, “permissible investment asset classes” include equities; debt securities; certificates of deposit; eligible collective investment schemes and subordinated debt. (All must be in Hong Kong dollars.) The scheme started in October 2003. The objective of the scheme is to grant residence to people who make capital investment in Hong Kong but who would not be engaged in the running of any business in Hong Kong. The investment threshold under this scheme has been raised from $6.5 million to $10 million with effect from 14 October last year.

“Unless with the approval-in-principle, investment completed on or after the suspension date, or more than six months before the date of application, will not be accepted as the permissible investment assets under the scheme, regardless of the amount,” the government said.