Communist Party School on VIEs | China Accounting Blog | Paul Gillis

Communist Party School on VIEs

In what may be an important development for VIEs, two Chinese scholars from the Chinese Academy of Social Sciences have published an article inStudy Times, a publication of the Communist Party School, that is critical of foreign investment in China’s internet sector. The article points to the recent Alibaba/Alipay dispute as evidence of this. The authors reach a conclusion that most of our readers have known for a long time – that despite the prohibition of any foreign investment in China's internet industry, it is controlled by foreigners. They suggest that the issue of control has not been given sufficient attention. Perhaps it will get this attention now.

We have already seen regulatory challenges to VIEs, leading toYahoo losing its interest in Alipay, and alleged theft of a VIE. Now we can add political risk. I think it is time to again ask the question whether VIEs are a going concern. I started this series suggesting that the VIE could be compared to the fable of the Emperor's new suit - not really doing what people are told they do. My recommendations to clean up this sector remain valid.

The China Real Time Report blog of the Wall Street Journal has picked up this story. There is also a good analysis of it at China Finance Blog. An interesting read on the legal theories at play here was posted by Professor Clarke at the Chinese Law Prof Blog. I like his conclusion: "I think we all agree that these structures are OK until they are not OK." Are we there yet?

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