Many mainland Chinese companies choose to incorporate subsidiaries in Hong Kong, which would normally require the Commerce Department and the National Development and Reform Commission to make such an offshore investmentODI(record of overseas investment). After the filing is completed, the parent company in mainland China may transfer the foreign exchange purchase of the investment funds approved for the investment filing to its subsidiary in Hong Kong.

After the transfer of this investment, the parent company needs to convert the foreign currency investment into RMB according to the spot exchange rate on the day of remittance and include it in the account of long-term equity investment, so there is also exchange difference. As mainland companies hold a larger proportion of the shares of the invested Hong Kong companies50%, controls the invested Hong Kong company, so the relationship between the two companies is parent-subsidiary.

According to China's accounting standards for business enterprises, the mainland parent company shall use the cost method to calculate the long-term equity investment, and there is no need to adjust the long-term equity investment according to the statements of its Hong Kong subsidiary at the end of the period. The corresponding investment income needs to be calculated only when the equity investment is disposed of.

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