Study For The Potential Risk Of VIE And Countermeasure

VIE, a financial accounting concept, with which Financial Accounting Standards Board(FASB) firstly came up in the 46 th interpretation issued in 2003, is short for Variable Interest Entities. Applied in China, VIE virtually refers to a legal structure of achieving overseas lifting indirectly. VIE is controlled by overseas listed company(this is also called SPV) through a series of contracts and their accounting statements are consolidated, which helps domestic enterprises to evade the legal provisions of limiting or prohibiting foreign investment on some particular areas and to achieve financing and overseas lifting. Therefore, VIE is quite popular among domestic enterprises which are restrained or even banned from pouring into foreign fund. In the 2006, “The Regulation on Foreign Investors Merging and Acquiring Domestic Enterprises” issued by Commerce Department and the other five governmental departments rules that when overseas company which is established or controlled by domestic company, enterprise or natural person wants to merge domestic affiliated enterprise, it needs the examination and approval of Commerce Department, which no doubt increases the difficulty and complexity of foreign capital merging and acquiring domestic affiliated company greatly. In fact, after issuing and implementing this regulation, Commerce Department hasn’t approved of one foreign company merging its domestic affiliated enterprise. However, in the traditional offshore IPO pattern, it would usually involve the merger and acquisition of domestic affiliated enterprises. Therefore, many Chinese enterprises which don’t bear the restriction of banning foreign capital investment also start to use VIE structure in order to avoid the relevant regulation and achieve overseas listing.However, with the rapid development of VIE, the alipay crisis, the event of emptying the capital of Shuangwei Education and the event of Xin Dongfang suffering investigation and lawsuit because of the change of VIE structure in recent years all expose the risk of VIE in some degree, which brings the furious discussion on the existence or abolishment of VIE among investment bank area and legal area. As for the attitude towards VIE of domestic supervision departments, the departments haven’t defined the validity of VIE or enacted unified and normative measures to supervise VIE so far. It is the ambiguity supervision attitude that intensifies the risk of VIE to a large extent. In addition, the special VIE contract design is also an important factor which causes the eruption of VIE risk. Therefore, it is very urgent and important for domestic relevant departments to define the supervision measures of VIE and to perfect the interior design of VIE structure.Based on the above background information, this paper wants to clarify the particular risk of VIE and domestic supervision measures of VIE by analyzing the recent risk events relevant to VIE, and then come up with some suggestions on how domestic supervision departments prevent the risk of VIE and perfect the supervision measures of VIE in the future. Specifically, this article firstly introduces some basic theoretical problems of VIE including the origin of VIE, the new development of VIE in China, the basic structure of VIE and the function of VIE, and so on; then it analyzes the particular risk of VIE by viewing the recent typical risk events relevant to VIE; next the paper clarifies domestic existing supervision regulations and measures of VIE mainly from Commerce Department, industry departments and financial regulator these three aspects; finally this paper, according to the risks exposed in the VIE risk events, puts forward to some pointed and practical suggestion on how domestic supervision departments prevent the risk of VIE and perfect the supervision measures of VIE in the future.