Paul Gillis: VIEs no longer viable

Author: Ashley Lee | Published: 18 Jul 2013
  • Decisions against VIE-related contracts in China’s highest court and arbitration commission create even greater uncertainty for the structure’s legal status;
  • The VIE may be legal, but it doesn’t seem that it is enforceable in Chinese courts;
  • A bilateral investment treaty between China and the US would help, but the best solution would be for China to relax its foreign investment rules to focus on foreign control rather than foreign investment.

The legality of variable interest entities (VIEs) in China is even more uncertain following unfavourable rulings in China’s highest court and a tribunal of the Chinese International Economic and Trade Arbitration Commission (CIETAC) Shanghai.

The structure has is also encountering uncertainty in the US, with the Securities & Exchange Commission (SEC) investigating US-listed Chinese companies that...