Effectiveness Of The VIE Agreements In China

The VIE agreements as the one of control mode,started in 2000,sina listed,then be copied by many companies in our country.Especially internet companies,like Jingdong and Alibaba,catch this great opportunity to achieve the rapid development.The VIE structure plays an important role in PRC-domiciled companies who want to list on the foreign stock market.However,the VIE agreements are an insoluble product of our industrial policy and regulatory environment.The VIE agreements may be one of the last few options of our companies under current PRC laws pertaining to foreign investments,when facing basic needs on financing.In a VIE agreements,contractual agreements are adopted instead of equity control,which means more unstable.Moreover,as a tool to circumvent foreign investments policy,the VIE agreements are at the risk of facing regulation.Due to the conflict between the VIE agreements and the existing Chinese laws and regulations,and considering the silence of regulators,the effectiveness of the VIE agreements keeps in controversial for a long time.The VIE agreements have already been adopted by a large number of Chinese enterprises listed in the US,Hong Kong and other stock markets.The applicable decision made by Chinese authorities or courts on the legality or validity of the VIE agreements will have significant impacts all over the world.The author believes the core questions that need to be answered are the VIE agreements are valid or not,it is correct or not that if the VIE agreements are deemed as effective and what will bring impact to the validity the VIE agreements.This article intends to proceed from below six parts to analyze the validity of the VIE agreements.The first part will introduce the knowledge of the VIE agreements,including the concept of the VIE agreements,history and the development of the VIE agreementsand constitution of the VIE agreements,etc.The second part,analyzing the cases regarding to the VIE agreements,which includes judicial judgments(Yaxing v Ambow,shareholder dispute of China Minsheng Bank),attributions(an online game company's case),attitude of administration(Buddha Group case and Wal-Mart Case)and high-media spotlight case-Ali Pay and etc..The third part is with regards to the analysis of the validity of the VIE agreement.It starts from discussing validity of contract and the regulations lead to the contract void in general.Then focusing on the VIE agreements,each agreement in package the VIE agreements consists of the general elements of a valid contract,while the integration of each agreement,which formed the VIE agreements may be void by violating the compulsory provisions of laws and administrative regulations,concealing illegitimate purpose under the guise of legitimate acts or damaging the social and public interests.The fourth part,mainly introducing the VIE agreements is wildly used currently in China,the VIE agreements are not good solution but the operators of the territory of China and the foreign investors may have no choice at present.Negative of the effectiveness of the VIE agreement be contrary to encouraging exchange and transaction,that's why it should not be the only choice.The fifth part,discussing the way out of the VIE agreements.Taking internet industry as an example,sorting out related laws and regulation.The vagueness in legislative and law enforcement attitude stem from the contradiction between enterprise financing demand and financing environment.No matter the risk of the VIE agreements or foreign companies that using it to bypass foreign investment legislation,it is necessary to be regulated.Improving the domestic capital system,establishing a multi-level capital market and widening foreign access channels could uplift external environment effectively,furthermore,establishing supervision system for the VIE agreements is necessary.The sixth parts,the fifth parts above are summarized.