Beijing is reviewing the legal framework of so-called 'Variable Interest Entity' (VIE) corporate structures used by foreign-funded Chinese firms to transfer effective control of assets to foreign partners. The review comes in the wake of a series of fraud scandals involving Chinese firms that used the VIE corporate structure to list in the United States, fuelling speculation that the controversial practice would be banned. But according to venture capitalists and investment bankers with knowledge of the review, Beijing is studying how to 'fine-tune' VIEs, rather than outlaw them. 'The Ministry of Commerce is seriously studying the practice, and officials deny speculation that it will ban it [VIEs],' said Roman Shaw, managing partner of venture capital firm DT Capital Partners. Shaw, who claimed to have had in-depth discussions on the issue with ministry officials, was speaking at an investment forum in Beijing earlier this month. 'In the long view, China wouldn't turn a blind eye to globalisation,' said Shaw - a reference to concerns that a crackdown on VIEs would hurt the flow of foreign investment into Chinese firms. Under a VIE structure, Chinese firms and foreign venture capital funds set up an offshore vehicle which, through one or more foreign investment subsidiaries in China, enters into contracts with the Chinese firms. The contracts give effective control of the Chinese firms to the offshore vehicle. Typically, the VIE structure is used because foreign entities cannot hold the licences to operate certain businesses regarded as essential to China's national interest. Under the VIE structure, however, Chinese firms are treated as foreign-owned businesses, which enables them to circumvent a series of complicated approval procedures in China when they raise funds offshore or list abroad. Earlier this year, the China Securities Regulatory Commission (CSRC) published a research report urging the top leadership and other ministry-level authorities to take a harsh stance on firms using VIE structures to list overseas. The report followed a series of scandals involving Chinese firms that had listed in the US. In May, US Securities and Exchange Commission chairwoman Mary Schapiro accused the CSRC of blocking efforts to probe frauds by Chinese firms. However, the Chinese regulator said the probes could violate China's sovereignty or national interest. Foreign venture capitalists are concerned that Beijing may respond by cracking down on the use of VIEs to conduct offshore fund-raising and listings. Most of China's overseas-listed firms - including internet portals Sina and Baidu - used VIEs to list on stock exchanges abroad. The Ministry of Commerce declined to comment on Friday. Gavin Ni, chief executive of fund consultancy Zero2IPO, said speculation on the future of VIEs had been weighing heavily on venture capitalist firms. In June, Wang Ou, deputy director of the CSRC's research department, became the first Chinese official to comment publicly on the VIE issue. He admitted that some Chinese firms had flaws and revealed that the regulator was paying close attention to the issue. In August, the commerce ministry said firms using the VIE structure would be closely supervised when they were acquired by offshore vehicles.