Congressional commission takes on VIEs | China Accounting Blog | Paul Gillis

Congressional commission takes on VIEs

The U.S.-China Economic and Security Review Commission has issued a staff report titled: The Risks of China’s Internet Companies on U.S. Stock Exchanges. The commission advises Congress on matters related to economic issues in China. 

The report focuses mostly on the variable interest entity structure and heavily cites this blog. There is nothing new in the report that has not been covered here, but it is a good summary of the issues.  

It is noteworthy that the Commission took up the issue. While VIEs are risky to investors, there is unlikely any serious risk to the U.S. economy from VIE problems. The report does point out the $18 billion lost by investors in Chinese reverse mergers. The market cap exposed to VIE risks is considerably higher.  Certainly, having such a high level body raise this issue will increase investor anxiety ahead of the Alibaba offering. 

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