Bloomberg News

China May Regulate Structure Used for Overseas Listings

September 20, 2011

(Updates with commerce ministry spokesman’s comment from second paragraph.)

Sept. 20 (Bloomberg) -- China may regulate a corporate investment structure that enable domestic companies to list overseas, a Commerce Ministry spokesman said.

“There are currently no laws or regulations to regulate VIE,” Shen Danyang, a ministry spokesman, said at a regular briefing in Beijing today, referring to variable-interest entities. “Mofcom and other related government agencies are studying ways to regulate such investment.”

The government’s position on the VIE structure, which allows foreign investors to tap cash flow from Chinese companies where foreign investment is restricted, became unclear after Alibaba Group Holdings Ltd.’s e-payment affiliate Alipay dismantled its VIE structure following discussions with the People’s Bank of China. At least 42 percent of Chinese businesses listed on the New York Stock Exchange or Nasdaq use the structure, including Baidu Inc. and Sina Corp.

Shen didn’t elaborate on the ministry’s discussions.

Already-listed companies may not be affected by a change in the government’s position on the structure, while private companies with foreign investors and plans to list may face new challenges. said Paul Boltz, a partner at Ropes & Gray LLP.

“Many funds have made investments through this structure in companies that are not yet listed,” Boltz said. “There’s a significant queue of companies trying to get to IPO that would be affected.”

In a VIE arrangement, foreign partners in Chinese companies agree to provide technical services in exchange for a share of revenue, avoiding restrictions imposed by the Chinese government that bar direct investment by foreigners in sectors including telecommunications, software, steel making, education and agriculture.

--With assistance from Li Yanping in Beijing. Editors: Joe Schneider, Douglas Wong

To contact the reporter on this story: Debra Mao in Hong Kong at

To contact the editor responsible for this story: Douglas Wong at

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