Research On China's Foreign Investment Law (Draft) And Its Impact On The VIE Structure

In 2006,the Chinese Ministry of Commerce,together with other 5government authorities,jointly promulgated “the provisions on M&A to domestic enterprises by foreign investors”(commonly known as "NO.10document").In order to bypass the regulation,the VIE structure is widely used.VIE(Variable Interest Entities)structure,which is also called "protocol control",means that some enterprise does not actually control a legitimate entity but get benefit from it.In January 2015,the Ministry of Commerce publicly announced the "foreign investment law(Draft)"(hereinafter as the draft).The publication led to a heated discussion in the theatrical and practical field.It proposed the "actual control" standard,renewed the definition of foreign investment,retained part of the original law,established foreign investment management system consisted by the security inspection and negative list..etc.It also put the VIE structure into management system.Although part of the draft remain to be discussed,it will still possibly be the first complete and unified foreign investment law.This paper attempts to make a brief analysis of the draft.Chapter 1introduced the general situation and defects of original law.Chapter 2 gives brief introduction about VIE.Chapter 3 discusses the provisions of the draft about the VIE.Chapter 4 focuses on the impact by the draft on 3 types of VIE structure capital(capital from mainland China,capital from Hong Kong,Macao,Taiwan and capital from foreign countries).In the last part,the conclusion shows the summary and outlook of the draft.The major part of this paper is the analysis of VIE stricture,involving how to identify foreign investors and how to judge the actual control,which also intends to make reasonable explanation and prediction.