Regulatory Problems and Risk Response Analysis of the Variable Interest Entity (VIE) System

Abstract

The main reason for adopting the Variable Interest Entity (VIE) structure is that China has strict policies and legal restrictions on the listing of domestic companies. Many domestic companies with VIE structure have successfully listed overseas, and have created remarkable results and gained huge profits, for example, Alibaba, New Oriental, Sina and other enterprises, but the Alipay scandal in 2017 had to make people re-examine the risks of the VIE structure. Therefore, the formulation of laws and policies and regulatory systems applicable to VIE in China plays an important role in the good operation of VIE. This paper will adopt the method of case analysis and take Alibaba as an example to discuss the regulatory problems and risk response existing in VIE itself. The legitimacy of VIE itself is still vague, coupled with the different regulatory systems at home and abroad, the attitude of regulatory authorities and courts towards VIE is not clear, and there is even an inconsistency which makes the operation of VIE structure has certain risks. Therefore, the research and improvement of VIE legal policies and information disclosure systems also play a very important role in the good operation of the domestic capital market.