On The Legal Regulation Of Vie Mode

VIE mode which is characterized by the contracts’ connection that isadmitted by the international accounting rules between operationcompanies in the territory of mainland China and listed corporations out ofthe territory of mainland China instead of acquisition of shares or assets isone of the so-called red chip modes. In China, SINA used VIE mode first tolist in NASDAQ in2000and the disputes of the shares of ALIPAY arisingin2011carried the VIE mode from the shadow to the sun.VIE mode was first used in the industry where foreign investment isrestricted or forbidden. As time goes by, especially after the “Rule10” waspromulgated, VIE mode was used more and more to escape the regulationof connected transaction. On the one hand, VIE mode is the result of theregulators’ acquiescence. On the other hand, VIE mode proves that theregulation is too hard for the SMEs to finance. In essence, conflicts existbetween the VIE mode and the regulation. However, there is no alternative.Chapter1&2start from the interpretation of VIE mode, introduce thehistory and the related theories of regulation, and explain the rationality ofthe conflicts by illustrating the existence and the reasons of the conflicts.VIE mode is different from the acquisition of shares or assets. ListedCorporations have weak control on operation Companies which is full ofmoral hazard in VIE mode. Moreover, breach remedy is too hard to achievebecause of the VIE mode’s vague legal status. There is few research on VIEmode, not to mention the research on regulation. Chapter3&4analyze the legal risks in VIE mode and establish the principles of regulation. Based onthe setting up steps of VIE mode, including the round-trip investment andthe abroad listing, this paper suggests some measures to perfect theregulation of VIE mode.