Opinion | China tech wades through uncharted waters as old trust comes under new scrutiny
- When trust between Beijing and Washington thins, as it has of late, the fragility of the corporate structure underpinning China’s tech listings is an elephant in the room
- Beijing is unlikely to explicitly ban variable interest entities (VIEs) as long as China needs foreign capital, but more regulatory oversight could amplify uncertainties
A once-unthinkable risk is looming large for China’s technology firms: the legitimacy of a legal corporate structure that allows them to take money from foreign investors.
Instead, it may be taken for granted that the VIE structure is just a way of business – i.e. “how things are get done in China”. For intermediaries such as law firms and investment banks, such arrangements could even be lucrative businesses, as additional paperwork, or “specialist services”, are required.
When the relationship between China and the United States is relatively cosy, the risks of a VIE structure can be ignored. But when the trust between Beijing and Washington thins, the fragility of such a structure is an elephant in the room. The US Securities and Exchange Commission’s new requirement for stricter information disclosures of such companies is just a reminder.