| In2000, Sina firstly created the concept of “VIE†in China and succeeded in theoverseas listing. The “VIE†mode has been used for more than ten years, and now ithas become the most favorable choice for the domestic privately owned enterprises toundertake overseas listing. Compared to the traditional red-chip mode, the overseaslisting procedures of VIE mode are almost the same, the main difference exists in theround-trip investment. The way of round-trip investment of the traditional red-chipmode is that the overseas listed company directly holds the equity or assets of thedomestic entities. However, in the VIE mode the overseas listed company controls thedomestic entities through a series of agreements rather than equity or assets.Therefore, VIE mode can circumvent the general legal regulation which focus on thetradition round-trip investment.This article focuses on the legal regulation on the round-trip investment of VIE mode,which cover China’s current industrial access threshold for foreign investment,control of foreign exchange, taxation and other areas. The article is in the aim ofanalyzing the current regulation, indicating the difference between the red-chip modeand VIE mode, and puts forward my own proposals on improving the legal regulationsystem of round-trip investment of VIE.The first chapter explains the basic theory of VIE mode, which includes the creationof VIE mode, the mechanism of VIE mode and the operation of VIE mode. Thesecond chapter explains the necessity of supervision on round-trip investment whileconcentrating on the difference between VIE mode and red-chip mode. The thirdchapter firstly introduces the status quo of China’s regulation on round-trip investment including industrial access threshold for foreign investment, control offoreign exchange and foreign mergers and acquisitions. Based on the currentregulation, the third chapter puts forward the analysis of the regulation. There areconflicts and inconsistency between the current regulation and VIE mode, noting thatthe idea of industrial access policy, the regulation on foreign mergers and acquisitions,the regulatory requirements for foreign exchange shall be amended with the currentmarket. The last Chapter puts forward the proposal to improve the regulatory regimeon round-trip investment under VIE mode. Firstly, the idea of supervision shall bechanged. Secondly, the principle of actual controller standard shall be established.Thirdly, the information disclosure of VIE mode shall be strengthened. |
