Data & Intelligence

Chinese Government Urged to Regulate Popular Foreign investment Structure

An internal draft memorandum reportedly prepared by the Chinese Securities Regulatory Commission (“CSRC”) for submission to the China’s State Council (the “CSRC Memo”) has heightened concerns in the foreign investment community regarding the future viability of the widely-used variable interest entity (“VIE”) investment structure in China. The negative view of the VIE structure expressed in the CSRC Memo is said to reflect the concern, held by at least some Chinese authorities, that foreign control of or investment in new media such as the internet threatens China’s national security. The appearance of these views in the CSRC Memo suggests that regulatory oversight and restrictions in this area will be increased in the future.

This article provides: (i) an overview of the VIE structure; (ii) a summary of the CSRC Memo; (iii) a brief summary of the treatment of the VIE structure in MOFCOM’s national security implementing regulations; and (iv) our preliminary analysis of the potential future implications for foreign investors.

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