China VIEs

Home | China Law Blog | China VIEs: Avoid, Avoid, Avoid VIE stands for variable interest entity and they are entities used to allow a company in China to technically be a Chinese domestic company, but be de facto controlled by a foreign-owned entity or entities. VIE structures are usually used to allow foreign companies to get involved in various sectors of China's economy forbidden to foreign companies by the Chinese government and its laws. We have been speaking out against VIEs for years ,and just about every time we do, someone says if they are illegal, why have so many large law firms, large accounting firms, and large companies gone along with them? The answer is simple. Money. And then we stopped writing so much on VIEs. Not because our position on VIEs had changed, but because we had said our piece (more than once) and it was time to move on. I am writing on VIEs today not just to say "I told you so" to everyone who doubted us, but to emphasize that whatever the risks were with VIEs back in late 2011, they are even greater now because exactly what we said about China forbidding VIEs has been borne out by a recent China Supreme Court case (involving Chinachem) with an unfavorable ruling for those invested in a VIE. In China Concern about a Chill in Foreign Investment, the New York Times wrote about this recent China Supreme Court case. According to China's Supreme Court, contractual agreements between the foreign and the Chinese company "had clearly been intended to circumvent China’s restrictions on foreign investment, and amounted to 'concealing illegal intentions with a lawful form.'" Though some commentators in the story talk of how such deals are more "sophisticated" today, in the end, they too are "intended to circumvent China's restrictions on foreign investment with a lawful form." The article goes on to note that since 2010, "Shanghai’s arbitration board has invalidated two variable interest entities that had been used by foreign companies to control onshore businesses. In one case, involving an online game company, the board applied China contract law to reach the same conclusion as the China Supreme Court in the Chinachem case, saying that the variable-interest entities were 'concealing illegal intentions with a lawful form.'" It then quotes Paul Gillis (who knows as much about VIEs as anyone) on how "China is attacking these VIE structures and the other ways that people have used legal form to get around the substance of what Chinese law says you can’t do." No surprise. Check Out Our China Law Services Share Twitter Facebook LinkedIn E-mail Comment Dan Harris Dan Harris is a founding member of Harris Sliwoski, an international law firm where he mostly represents companies doing business in emerging market countries. Most of his time is spent helping American and European companies navigate foreign countries by working with the international lawyers at his firm in setting up companies overseas (WFOEs, Subsidiaries, Rep Offices and Joint Ventures), drafting international contracts, protecting IP, and overseeing M&A transactions. In addition, Dan writes and speaks extensively on international law, with a focus on protecting foreign businesses in their overseas operations. He is also a prolific and widely-followed blogger, writing as the co-author of the award-winning China Law Blog. Harris Sliwoski Attorney Read more posts [email protected] Read More AI, Internet, Web3, and Blockchain, China Business Related Posts September 15, 2026 Your AI-Drafted China Contract Says It Needs a Lawyer. Listen to It. September 11, 2026 Forensic Accountants in China Business Litigation: How True Numbers Can Tell the Wrong Story September 4, 2026 China NNN Agreement or Trademark Registration? You Usually Need Both September 1, 2026 AI Didn't Replace Lawyers. It Gave Us the 48-Page Contract. August 27, 2026 Do I Need a China NNN Agreement or a China Manufacturing Agreement? Usually Both. August 26, 2026 China’s New Overseas Investment Rules: Can Your Chinese Investor Actually Get the Money Out? August 24, 2026 International IP Protection for Startups: What to Protect and Where August 19, 2026 The Documents Are the International Deal August 19, 2026 China Supplier Fraud in Yiwu: Why We Recommended the Police, Not a Lawsuit August 17, 2026 China Trademark Registration: Why U.S. Companies Need More Than a Filing Agent August 10, 2026 Buying Expensive Equipment from China: Seven Questions to Answer Before You Pay August 7, 2026 DDP Shipping Risks: What Boise Cascade’s Guilty Plea Means for U.S. Buyers August 6, 2026 Protecting Your Artwork Internationally: What Artists Need to Do Before the Work Travels August 5, 2026 Your China Employee Signed the Vacation Policy. You Can Still Lose. July 29, 2026 The RedNote Contract Lesson for Companies Doing Business in China Leave a comment Cancel reply