"GLGA Lecture Hall", a high-end think tank program launched by the Green Legal Global Alliance (GLGA), aims to gather the backbone force of China's top economists, outstanding entrepreneurs, and well-known scholars, focus on industrial hot issues, take a broad international view, and rely highly on local conditions, so as to promote the sound development of the industry under the principles of rationality, innovation, green, and health. Held once a month with industrial big names invited each time, the "GLGA Lecture Hall" mainly focuses on the current economic, financial and legal conditions, explores the latest topics, and makes a judgment on the future development trend. 

On the afternoon of May 31, 2018, the first session of GLGA Lecture Hall was successfully held at the Innovation and Development Center, Green Legal Global Alliance. Mr. Wang Zhongmin, the former vice president of the National Council for Social Security Fund, The People's Republic of China, is our first keynote speaker, who will analyze SPV in all aspects from the perspective of finance, taxation and law by taking a broad international view, and answer some questions raised by guests. Approximately 100 people involved from banks, financial institutions, and institutional associations take part in the event. The Secretariat of the Green Legal Global Alliance will give a summary of Mr. Wang Zhongmin's real records, and unveil the mystery of SPV from a different perspective. 

Why am I choosing SPV as the topic? 

I have long been engaged in social security, mainly making investments, especially the private equity investment, which is an alternative investment. If I talk something strange during the speech, it is all about my professional habit. I used to deal with the legal affairs of social security, worked in the Legal Department for quite a long time, and served as a chairman of Risk Committee and Compliance Committee. However, I fully understand that it will take a long time for experience accumulation in this field. With rich specific legal connotation, there exists a large dead zone and huge space for China's social behaviors by law in various respects of investment, economy, and finance. Guangchao invites me to deliver the first lecture at GLGA. In terms of cross-border, I can center on finance and economy since I have gathered some experience about them. Internationally, I choose SPV. By the way, BVI and CDI are all international terms. Nowadays, among application scenarios in China, we follow the legal and economic systems introduced overseas. So, we'll mainly talk about SPV today. 

In strict accordance with the law, green development in the financial field can be achieved by following the mainstream. Therefore, I think "SPV is a treasure", its overall value orientation and my personal view on its financial social status. 

 Improper use of SPV in real social settings cannot be ignored 

Today, from the reality, we can see that there is no formal, clear, controllable, and full-process closed-loop SPV. China has its own SPV, where the readymade company is likely to escape from bad development status. I searched some information about it on the Internet yesterday, it said that the readymade company had more than 50 branches with different businesses. It's quite famous. Speaking of chips, Shanghai has made breakthroughs in this field. Upon test, the chip enjoys great performance, which is quite exciting. With numerous research grants and cost inputs, it is found that the logo is printed on the chips after removing the previous one. Shanghai, one of the participants, would escape from the messy situations eventually with no credit. Under such circumstance, the readymade company would come into play. This is the so-called SPV of Chinese style for circumvention. Today, there is a special goal of SPV in China, what is it for? Obviously, it is to squeeze government subsidies, scientific research funds, and government investments. You may believe in me only with one SPV consulted. However, if there are mutual asset risks under cooperation, I eventually run away, and the readymade company bears all losses and consequences. 

We must note that only the readymade company is there, after the natural-person shareholder and natural person subject run away. All efforts went for nothing. Today, relying on government subsidies, scientific research funds, and government investments, we can carry out venture capitals. However, it is unlikely to be successful. For venture capitals, you can quit at any time after that failed. All that is caused by the fact that all venture capitals are driven by special purpose in the early days of investment. 

Actually, there are a majority of readymade companies in the financial field. Today, the so-called readymade company is all about escapement, and cheating in this field, such as the blockchain, supply chain, and P2P. Have you even registered a company? If it frequently happens to SPV of Chinese style, we should reflect why is it reduced to such a status, sheltering wicked deeds, squeezing government subsidies, and undertaking national industrial funds? This form is time-tested, long-existed, and diversified. Although it represents the general trend, it is negative, and all said securitization scenarios fully demonstrate all kinds of social phenomenon. A great many of our assets and cash flows show negative views. 

Special purpose of SPV 

For such phenomenon, I can talk a lot with several friends of the foundation. Nowadays, the whole society gets trapped in the lack of competent GPs. Please note that LP refers to Limited Partner and GP to General Partner with the biggest difference of liability. Today, if the unlimited liability of GP is extended to the foundation in the long term with credit assets, you can invest all your assets, credits, and brands in with unlimited liabilities. However, based on statistical data of the Association, there is no single GP who really implements the unlimited liability into the structure of its own foundation? Furthermore, all companies of the unlimited liability can finitely extend their unlimited liabilities. 

Furthermore, on the basis of law, the legal framework in which the natural person assumes the unlimited liability cannot be found in China. If it exists, what is the minimum requirement for natural persons? Nowadays, the bankruptcy system of natural person has been developed in other countries. However, if China does not make this system accessible, how can it ensure that the enterprise with unlimited liability can afford its own basic living. If the basic living cannot be satisfied, the natural person is on the edge of General Partner following the social security system. 

That's to say, the legal framework fails to support the natural person to perform its unlimited liability under reasonable bankruptcy standards. Film & TV companies in Hong Kong have gone bankrupt, whose source of funds can only afford their own normal life, who, of course, demand an extravagant life. This is about institutional system. In today's institutional system, there is a sole unlimited liability, and what all SPVs need to do is to take account of responsibility, action and application. 

SPV in different perspectives 

In today's world, we must note that when we discuss SPV, even though we run into its legal system, de-structure and return to production factors, there are still free of effective social norms, conventions, systems and designs. 

Therefore, when SPV gets here, it all attributes to escapement, rather than reasonable, fair, and effective logic with negotiations. There is no institutional constraint for partnership company when non-cooperation, leading to mutual injury and eternal hate. Such cases can be found everywhere. The above is my first part of speech today, covering phenomenal stratification, phenomenal logic, phenomenal scale in total assets, phenomenal logic in securitization, as well as positive and negative aspects in today's world. 

Why is SPV a treasure? 

In the next part, I'll explain why SPV is a treasure. Special Purpose Vehicle is abbreviated to SPV. There are many kinds of SPVs. We can also see SPT (Special Purpose Trust), SPA, and SPC since the letter after "SP" can be different. It can represent a carrier, which may be a fund, limited partnership, limited liability company, company, or trust under the rich category. 

Please note that the more categories it has, the more combination can be found, the more tools for reaching special purpose can be used. A special carrier of the company, fund or trust with only one special purpose is the simplest and most effective. Therefore, a series of commerce & industry, taxation and shareholder regulations have been established, implemented, managed and cancelled. This reveals there are various carriers with special purpose behind complicated transaction structure. It is about institutional supply of the society. The more the institutional supply, the richer the ability, platform, and structure for the special purpose, and the quicker it can achieve all purposes separately. It embodies the corporate, credit and trust systems in a civilized manner. 

The "law" is a fundamental value pursuit in this field 

Laws and regulations are fundamental value pursuits in this field. BVI has enacted a global industrial and commercial registration system by law to gather global enterprises based on global resources and registered company conditions. When working out this system, it is so mature that can be directly listed in the US, London and other markets in terms of registration. The legal system, legal framework of the securities market, and industrial and commercial framework, etc. are all satisfied. Other materials for the establishment in other places are not needed, including the taxation. What I only need is a partial payment of annual fee. Due to systematic domestic and foreign laws at different levels, only one lawyer is in place during BVI registration. If there are no special requirements for the fund, all procedures can be completed upon submission of legal materials. 

Therefore, the "law" is the most fundamental in this system. What I'm stressed out is that it is not only the most crucial and fundamental in institutional supply, but also a closed-loop system ranging from the establishment, operation, exit, dissolution and disintegration, covering data and material. It is a complete closed-loop legal system with flexible entering/leaving standards. Consequently, it is the world's leading complete legal system from establishment to exit. 

Next, the legal system not only needs to meet local legal requirements, but also different financial, and industrial and commercial scenarios around the world. The laws in different scenarios shall be partnered, and diversified opinions can be made through SPV manifestations. If one structure is to be selected, it must be VIE structure. The trust structure shall be employed for securitization of all incomes. VIE is under the domestic trust law, and is protected all over the world, in which, domestic and foreign legal systems can be effectively protected and linked. Therefore, businesses can be done in the global market smoothly. 

Finally, this law not only matters the registration, but also is related to the industry and commerce, taxation, etc. The aspects involved must be complete, and most importantly, the effective connection between special purposes and laws as well as between financial services and their service abilities hall be guaranteed. We shall target the most primary financial service personnel of VIE in the US markets after listing. If the trust law can be observed and securitization of incomes fulfilled, benefits from the income of underlying assets must be delivered. How to take full advantage of the income if having nothing to do with the Board of Directors? When the dividends can be enjoyed by the retail investors, participants in the securities market and shareholders, the legal structure is in place. However, only the custodian bank can put it into practice. 

Therefore, when the US custodian bank performs its special VIE obligations, the function of underlying assets as well as the annual yield can be clearly identified. When the Board Meeting is held, the earnings belonging to interest subjects must be distributed in full. Can it be achieved by Chinese banking institutions? The answer is "No". Non-SPV-based Chinese banking institutions, with different logics, are always following the traditional method. Therefore, there is no custodian bank that can carry out business all over the world due to poor supply. Based on the law, it is not only multi-level and all-sided, but also can be fully and effectively linked with the service capability of service sides. 

Institutional and service systems of SPV in global markets 

We have mentioned four aspects concerning the law, commerce and industry, and taxation domestically and internationally, from the perspective of executable and operable law with special purposes. It is an integral part of supply service ability, and also constitutes institutional and service systems of SPV in global markets. Recently, the US has conducted a survey to over ten people in the banking industry, just like the investigation on ZTE, which is rejected by China, Iran and North Korea since all social forces, regardless of nationality, are performers of any resolution. The interests are totally rejected. 

What is the greatest fear? For the so-called survey on natural persons of the chairman, president, branched president, and service supervisor, what is the most recognized part in China? It is the red stamp, with which, everything gets easier. You have a say if working in a minister-level unit. The official documents issued with the stamp are the most powerful. However, in a country typically predominated by the civil right of natural persons, their credits are on the top of agenda. Therefore, the natural person who has signed under investigation should show own characteristics. Let's get back to SPV. It could be virtual, with various and cross-level special purposes. Those who manage to develop new special purposes can take full advantage of legal form. However, the natural persons involved and shareholders should take full responsibilities, which play a decisive role. The identity of global citizenship and true natural person must be ensured. The shareholder undertakes the ultimate responsibility in SPV. As a result, supervision and control are of great significance. Regardless of the level and catalogue of special purposes, listing and exit countries and regions, as well as targeted action, the role of natural persons and shareholders are always fundamental, which is in strict compliance with the legal system, law and regulation, company law of natural persons and shareholders, and law of natural persons. 

Amid the offshore islands registered in the world, the Panama islands made the earliest application for registration. At that time, a large number of natural persons and shareholders were involved in illegal acts, such as drug trafficking. In the subsequent management, the registration system function of readymade company was declined. From the perspective of anti-terrorist and money laundering, the US can attack anybody by virtue of accounts in SPV, tracing their all assets, and roles and functions as natural person and shareholder. This is the second aspect of Part II. 

SPV under capital logic 

In this part, we'll focus on SPV under capital logic. When we talk about SPV in terms of the optimal allocation of capitals, the more adequate the special purpose, the more smooth the social capital flowing to the special purpose, the more likely the optimal allocation of capitals (global). It is more likely to give full play to the global innovative technology and application by means of special purposes. Moreover, if all capitals take effect in the capital form, the country who is short of capital should formulate policies regarding taxation and supervision of special capital gains in the capital form towards SPV with special purposes. As long as the capital is not distributed to the natural person and shareholder, it is about investment and reinvestment prior to withdrawal. Should it be tax relief or deliberate taxation? The former. If the tax relief is made in an all-round way, the low income could be balanced. In the long run, the compound interest of capital gains, return on investment, and reinvestment effect could exert enormous influences. 

Under the global impact, the institutional supply of the most effective and reasonable SPV is accessible. The constantly updated capital logic can help capital-driven SPV remain remarkable process. Therefore, the capital logic is born along with the taxation logic. 

As we know, the financial service covers the law, taxation, commerce and industry, custodian, and securitization. In the modern service industry system, the integration of financial services serves as an important element. If the financial service is insufficient, both the effective allocation of financial assets and prevention of financial risks are out of the question. All can facilitate better financial services. 

What would it be without SPV? 

This part lays emphasis on "What would it be without SPV?" Getting back to what I just mentioned, a great deal of illegal acts, such as illegitimate escapement, subsidy squeezing, and cheating, would be made in the absence of good tools, markets, and institutional supplies. If an enterprise gets involved in rough-and-tumble matters, its customer services are in a complete mess. Much work has already been done for enterprises to be established during industrial and commercial registration under mass entrepreneurship and innovation. However, it fails to make the special purpose clear during the initial establishment (even of the readymade company). During the whole course, it can be profitable and the most needed for resource allocation, prevention, and isolation. In the absence of effective institutional supply, illegal acts can be made with the help of readymade company which can be sold. In other words, the readymade company is home to illegal acts, changed income and monopoly. As long as there are special purposes, the institutional supply in this regard can be completely achieved and thus become effective. 

Assume that the effectiveness of the global market hinges on the adequate and effective institutional supply of SPV. All invalid, ineffective, reversed and unmoral application in the market attributes to the institutional supply of SPV. If illegal acts in this field have been made, the law related to the industry and commerce and taxation should be observed. These systems for setting up a company have been implemented for several decades. The only thing I have done in all SPVs is to separate the original asset, company, and risk. The isolation of risk can help SPVs be independent of the original assets and purposes. After satisfying the special purpose, tax relief, complete separation of right of management and ownership, financing, and company establishment and listing with special purposes under public offering can be fulfilled. 

Today, this method has been used, free of institutionalized regulations. Why is such a good term not institutionalized? Our exit today results from NPA disposal of the bank and extensive credit risk in the absence of SPV. If the special purpose is fulfilled, the legislative authority has been performed. It would be satisfactory by all at the very beginning under the decomposed logic. The clarified logic is necessary of SPV. If it still cannot be institutionalized, this individual case could make no difference. In return, it can measure fairness for all investors. The open-market, fair and well-organized logics in the market cannot be fully demonstrated by a single company. Last but not the least, if the Unicorn can trigger the thinking of SPV as well as the individual case, it's time for institutionalization. 

Through SPV, we can be keenly aware of our shortcomings. SPV can bring China a new and effective financial service and financial system in which true institutional supply and booming market can be achieved. In this connection, SPV is a treasure, in which, the legal experts take the lead in construction and effective operation. It is also a company structural and financial service system delivering benefits. 

Thank you!