PE firms must not ignore warning against VIE structures

Author: | Published: 25 Oct 2011
The next shot could be fatal

Companies that ignore Chinese Securities Regulatory Commission's (CSRC) internal memo on the use of variable interest entity (VIE) structures in private equity investments into China are playing a dangerous game, industry advisers have warned.

A purported CSRC memo, written in August 2011 and released last week, outlined Chinese authorities' concerns with VIE structures and the threat that foreign investment in new media, such as the internet, posed to national security.

The VIE structure has historically been used as a work-around for investments into industries where foreign direct investment into China is either restricted or prohibited. Telecommunications, media and the internet are prime examples.

Publication of the memo prompted speculation that a tough regulatory crackdown on the Chinese internet industry, and those companies using the VIE structure,...