Study On The Legal Regulations Of The Contractual Arrangement

The Contractual Arrangement often appears as the “VIE structure” or “VIE mode” in China's media and even some official discourse systems.Because it was launched in the year 2000,by Sina Company,so it was also called as “Sina mode”.The basic meaning of the Contractual Arrangement is as follows: between two legal entities,one party controls the other party by signing agreements and establishing a contractual relationship instead of share holdings.After its birth,it was highly sought after among listed companies in China and helped many Chinese companies achieve their overseas IPO goals.The most important reason is that they can subtly circumvent the strict supervision of domestic institutions and break through foreign investment restrictions in certain industries.Facts have also proved that since the success of Sina Company,the Contractual Arrangement has indeed played an important role in promoting the development of emerging industries such as the TMT in China.Although the attitude of domestic regulators has been unclear,the Contractual Arrangement born to avoid domestic supervision has hidden huge risks from the beginning,and it still has to face the supervision of Chinese laws.In January 2015,the “Foreign Investment Law of the People's Republic of China(Draft for Soliciting Opinions)”(hereinafter referred to as “Draft of Foreign Investment Law”)is a testament to the determination of the national regulatory authorities to bid farewell.However,on March 15 th 2019,four years and two months later,the “Foreign Investment Law of the People's Republic of China”(hereinafter referred to as the “Foreign Investment Law”),which was approved by voting at the Second Session of the 13 th National People's Congress,seems to pull it back to the gray zone.However,the author believes that the formulation of basic laws in the field of foreign investment will also be an important milestone for the Contractual Arrangement.The authorities need to proceed from history and reality,and focus on the future,in the spirit of caution,on the basis of the various systems established in the Foreign Investment Law,the overall design of the legal supervision system of the Contractual Arrangement provides an institutionalized guarantee for the final and stable exit of the Contractual Arrangement from the historical stage.This paper mainly discusses the legal supervision of the Contractual Arrangement from four parts:The first part: This part lays the foundation for the following discussion.Firstly,the concepts of the “Contractual Arrangement” and “VIE structure” are mixed frequently,and the legal structure,main features are analyzed,also the reasons for their inclusion in legal supervision.The second part: This part details the changes in the regulatory logic of the overseas indirect IPOs in deferent periods,and then analyzes the legal risk of the Contractual Arrangement caused by these changes.The third part: This part mainly points out some main problems in the supervision of Contractual Arrangement,i.e.the uncertainty in behavioral norms,inconsistency in regulatory rules,lack of investor protection mechanisms,and disconnection between regulatory rules and practice.The fourth part: In this part,the author first undertakes the analysis of the second part,pointing out that the regulatory logic of the Contractual Arrangement should be reconstructed.Then,mainly for the problems revealed in the third part,the paper puts forward some suggestions for perfecting the legal supervision system of Contractual Arrangement.The author argues that the rational core of the “Actual Control” from the Draft of Foreign Investment Law should be properly retained in the follow-up legislation,and the rules for information disclosure and post-event supervision should be the focus of legislation,and the effectiveness of the relevant new laws should not be retroactive to the existing Contractual Arrangement enterprises.In the end,should comprehensively implement the “negative list” management system and establish a coordination mechanism for cross-jurisdictional supervision.The academic innovation of this paper lies in the prediction of the direction of national regulatory development in light of the latest legislative developments closely related to the Contractual Arrangement,such as the Foreign Investment Law,and put forward my own suggestion,i.e.When formulating supporting laws and regulations for the Foreign Investment Law,the reasonable content in the Draft of Foreign Investment Law should be properly retained.At the same time,in the case of how to deal with the existing Contractual Arrangement enterprises,it is recommended to treat it differently to stabilize people's expectations and avoid harm.At the same time,the authorities should speed up the pace of opening up to the outside world and orderly liberalize access restrictions for foreign investment.