Study On VIE Structure In Overseas Listing Of Chinese Enterprises And Its Supervision

VIE structure is a special structure used for the purpose of overseas listing of Chinese enterprises. The essence of VIE structure is the relationship between the domestic operating entity and the overseas listing company is control over contractual arrangement, rather than ownership. Through a serious of contractual arrangements, the overseas listing company is able to receive substantially all of the economic interest of the domestic operating entity and obtain overall and effective control over the people, capital and properties of the domestic operating entity, so that the overseas listing company satisfies the listing requirements of relevant overseas stock exchanges and go public successfully.The first part of this thesis introduces VIE structure briefly. VIE structure originated in China, which was first used by SINA Corporation in its initial listing on NASAQ in2000.The most essential and important part of VIE structure is a series of complicated contractual arrangements. These contractual arrangements implement two purposes: first, the overseas listing company obtains actual control over the domestic operating entity; second, economic benefits of the domestic operating entity transfer to the overseas listing company. Therefore, by virtue of VIE structure, the overseas listing company is able to consolidate the financial report of the domestic operating entity, so that the overseas listing company satisfies the listing requirements of relevant overseas stock exchanges.The second part of this thesis summarizes the current regulation status of VIE structure in China. All the regulatory documents related to VIE structure in China are regulations promulgated by departments of the State Council, which all adopted a negative statement of VIE structure. However, in practice, the relevant departments generally allow the existence of VIE structure and don’t punish or forbid VIE structure, and even explicitly confirm the legality of VIE structure to support the overseas listing of relevant enterprises. But there was once where a local department explicitly denied the legality of VIE structure.The third part of this thesis analyzes the problems of the regulation of VIE structure in China. The regulation of VIE structure in China is not systematic, as a result, the rules related to VIE structure can hardly be implemented in practice. The regulation of VIE structure is conflicting in China, including:regulatory rules are conflicting with regulatory practices; regulatory practices of different local departments are conflicting; and regulatory practices of national departments are conflicting with those of local departments.19January2015, the Ministry of Commerce released the PRC Foreign Investment Law (draft version for public comment), which redefines the legal nature of VIE structure and provides an improved regulatory plan. But there are still some problems as to the specific rules related to VIE structure, which requires further modification.The forth part of this thesis proposes some suggestions regarding the regulation of VIE structure. First, VIE structure has some positive effects, thus it should not be completely forbidden; second, VIE structure should be regulated systematically to coordinate with the foreign investment access system in China; third, I agree with the regulatory plan of the PRC Foreign Investment Law (draft version for public comment) that the nature of VIE structure should be decided according to its actual controlling person, but suggest modification of certain specific rules; last, the regulation of VIE structure requires cooperation with the regulatory entities of foreign stock exchanges.