Malta has an open market economy and has created the right economic environment to meet the demands of players in the global market. It does not have any natural resource wealth, energy reserves or any heavy industry: the country thus depends entirely on imports to meet its requirements of basic products, energy needs, industrial products as well as consumer goods.

Malta’s strategic location in the centre of the Mediterranean as well as its harbours and Freeport continue to make it an excellent location for manufacturing and services. Its history as a hub for trade and business dates as far back as the Phoenicians in the first millennium B.C. It is interesting to note there is also a link between China and Malta concerning the gaming industry.

For example, in China, the ministry of Welfare and Lottery every year hosts an international conference on the subject “Gaming Industry and Public Welfare”. For the past five years PKF Malta was invited to attend the conference in Beijing or Macao and submit a 9,000 word paper on gaming regulatory issues prevailing in Europe. On 16 November a partner of PKF will speak about challenges and opportunities facing the gaming/lottery industry.

In this context it is good to observe that, since 2001, Malta has positioned itself as an international hub for the gaming industry due to the high quality of its regulatory authority that has set strict benchmarks in the online gaming industry. But as stated earlier Malta is also becoming an international hub for transshipment of cargo. Being the smallest country in Europe it has invested heavily to exploit its strategic location as one of the most active logistical centre in the Mediterranean.

The island republic has EU-wide shipping connections boasting of being one of the largest ship register and serves connections to 165 harbours on every continent. Malta Freeport is the third largest in the Mediterranean now handling yearly 2.3 million TEU transhipment and ranks among the 12 largest harbours in Europe. So one may ask why is this important for cross border global trade traffic? The answer is simply that as an island, Malta has expanded its industrial base concentrating primarily on manufacturing and services for export.

To prove this one may consider that it has an intensive import ratio with Italy, the US, Britain, France and Germany with whom it enjoys a liberal foreign investment policy. Major imports are electrical and electronic components, machinery, mineral fuels and oils, vehicles, plastics, and food products. There is also a very narrow export ratio in the relationship between Malta and the UK, Germany and Italy. Malta exports a number of products such as electronic components and sub-assemblies, pharmaceuticals and medicinal, rubber and plastics, fabricated metal products and machinery, software, garments, as well as food products. However, it has ambitious trade connections with both China and Libya. Quoting the World Trade Organisation in September 2012, Malta has trade of $4,386m in exports and an import of $6,293m. A closer look on the breakdown of its total exports by main destination, one finds China to be on the fourth place, just behind the European Union, Singapore and the United States.

Since its accession to the European Union on 1 May 2004, Malta has faithfully adopted the EU Common External Tariff. This means that trade with Malta is totally free from customs duties, provided that the country of origin of the goods is one of the other EU member states. Duties for non-European countries are quite low, notably for manufactured goods carrying a surcharge of 4.2% on average for the EU general rate. Nevertheless, textile, clothing items and food-processing industry sectors are still subject to protective measures. At this juncture one may wish to explain the advantages of having a Single market within EU countries. Thus in the past 50 years – particularly since the 1980s – the EU has worked hard to break down barriers between the EU economies and to establish freedom of movement within an internal market. As a result of this policy, trade between the EU countries has increased sharply, and at the same time, the EU has become a major world trading power. The Single market is one of the greatest achievements of the EU having as a result attained a free flow without physical boundaries in Europe and of course this has helped in no small way to increase competition, facilitating the availability of better quality and lower prices for goods and services. Two-thirds of all EU trade account for trade between the EU member states, although there are some differences in the extent between the member states. Because of the internal market, trade between the EU member states is very simplified which help to qualify the EU as the largest exporter in the world and the second largest importer. It goes without saying that so far the US is the largest trading partner of the EU, followed by China. But this may soon change in the near future since China is the world’s fastest-growing major economy, with growth rates averaging 10% over the past 30 years (it slowed down to 7.8% in 2012). Still it is also the largest exporter and second largest importer of goods in the world. The country’s per capita GDP (PPP) was $8,394 (International Monetary Fund, 90th in the world) in 2011. So how does Malta feature in the global trade scenario? The answer is that business with China is on the increase and has expanded by 25% over the past three years, in spite of the international economic slowdown. In a joint statement with Chinese Foreign Minister Yang Jiechi, Dr Borg (the Foreign Affairs minister) said both countries agreed to continue working towards improving these figures. Mr Yang visited Malta for two days in January this year and this coincided with a history of 40 years in bilateral relations between the two countries, which will be celebrated through selected  events  during the year. Mr Yang characterised his visit as being of “great importance”, one in which an exchange of views took place on the bilateral relations between the two countries along with regional and international affairs. He pointed out he had met Dr Borg on many occasions and had an excellent personal and working relationship with him. He also expressed his satisfaction about Malta’s role in promoting the EU-China partnership. Mr Yang said more Chinese tourists and students would be encouraged to visit Malta, which he described as a safe place and quite attractive for investment. In his words, sea transport, education, financial services, high value added manufacturing, energy and tourism were also areas that could experience growth between the two countries.

It is opportune to note that in 2010 the Malta Financial Services Authority (MFSA) and the Chinese Securities Regulatory Commission (CSRC) signed the Memorandum of Understanding and as a result Chinese Qualified Domestic International Investors (QDII) are able to invest on behalf of Chinese investors into Maltese domiciled funds which are licensed as Retail UCITS Schemes or Professional Investor Funds. A UCITS fund is the European standard, being a  worldwide known brand of quality for investment funds and is primarily suited for retail trade investors and thus affords top investor protection safeguards which are guaranteed in the UCITS directives. The regime permits UCITS Funds to invest in transferable securities, money market instruments, units of other UCITS, deposits with credit institutions and financial derivative instruments. Another type of local licensed funds in which a QDII may invest in are Professional Investor Funds (PIFs). Here one must explain that PIFs are primarily targeted for demanding investors and as such are more risky and  less firmly regulated than UCITS Funds. However, the PIF regime is designed to create an ideal balance between the flexibility and high yield characterising these types of funds with the regulatory safeguards which ensure a satisfactory level of protection to their investors. For convenience it is good to know that it is also possible to covert a PIF into a UCITS Fund.

To conclude, a growing sector which may interest Chinese investors is the diversity of investment funds licensed by MFSA in Malta. MFSA is the sole financial services regulator – ensuring competitive licensing and supervisory fees together with a flexible and transparent regulatory setting.

The attraction of Chinese investment in Malta as a secure and fully EU compliant fiscal regime is an appropriate initiative which can open the floodgates for more  investment funds and act as a real testament to the island as an ideal domicile for funds in Europe.