Abstract
This article aims to show how the globalized securities market in general and a transnational legal business structure named variable interest entity (VIE) in particular has challenged our conventional understanding of “foreignness” as a geographical concept in cross-border capital flow and ushers in a new type of foreign investment which I call “offshore domesticated foreign finance” (ODFF). By performing a case study on Alibaba—one of the world’s leading VIE-structured Internet companies—and mapping out the company’s fund-raising history and personnel appointment mechanism with the help of company releases and news reports, this article shows how ODFF makes a company de jure foreign-incorporated and -owned but de facto China-based and Chinese-controlled. This article also demonstrates that ODFF’s primary function is to allow China-based Internet firms to tap into international financial markets while helping Chinese entrepreneurs and managers—despite their minority shareholdings—to control the company. These findings shed light on how financial globalization has transformed the cross-border capital movement and corporate governance.
Highlights
Internet Firms: The Case of Alibaba.19 September 2014 marked an iconic moment in the history of capitalism
2010, Ma used his dominance over Alibaba’s assets inside China and the power granted by the Hehuoren system to spend a total of RMB 330 million to transfer the Alipay assets from a China-based wholly foreign-owned enterprise established by the Alibaba Corporation on paper to Zhejiang Alibaba Commerce, a completely domestic company founded in October 2000 (Wang et al 2011a)
The objective of this article is to show how the globalization of financial markets has contributed to a particular form of cross border capital flow that I call offshore domesticated foreign finance” (ODFF)
Summary
Perhaps to the great surprise of many, the Alibaba Corporation, the company listed in the NYSE, was not even a Chinese company in the legal sense. Alibaba’s Chinese co-founders and managers, three dozen in total, aggregately held the minority of its issued shares, owning only 14.6% of them at the time of the 2014 IPO (Securities and Exchange Commission 2014). Alibaba’s Chinese co-founders and managers, three dozen in total, aggregately held the minority of its issued shares, owning only 14.6% of them at the time of the 2014. Chinaincan camouflage as foreign entities by foreign entities by creating special(SPVs) purpose vehicles financial (SPVs) incenters offshore(OFCs). Because of their historical andwith legalthe affinities with the major financial regulations of(OFCs). One isinvestors that the possess global investors possess investors for two reasons.for
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