“The risks of Variable Interest Entities have long been known... however these risks require clarification by China before they are taken seriously”.
To what extent is this accurate and what does it mean for the future of Variable Interest Entities?
Introduction
The Variable Interest Entity (‘VIE’) is a well-established and widely utilised structure of investment employed in foreign investment in China. It entails a succession of contractual arrangements which hold the principal intention of circumventing the investment restrictions China has placed upon foreign ownership in particular sectors of the Chinese market. Consequently, the legal validity of VIEs has been a point of contention since its very inception. The Sina Corporation was the first company to successfully investigate the uncertain environment surrounding the VIE in 2000, through its public listing on the NASDAQ. Here the Chinese authorities in general approved the use of the structure and in consequence the structure has been broadly implemented throughout foreign investment in China. This has aided, among other things, a number of the most renowned Chinese enterprises by facilitating their acquirement of foreign capital and finalising offshore listings, notwithstanding the legal restrictions. Nonetheless, the intermittent public quarrels between the different parties to the VIE arrangement and the unclear and often contradictory approaches of various regulatory bodies highlight the drawbacks associated with VIEs.
At the time of research the relevant parties are still operating upon a basis of speculation. However it has become clear that people are becoming progressively more apprehensive in regard to the underlying legal defects of this structure. Thi...
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...ivate enterprises due to ideological concerns and interference from the government in relation to bank lending and the presence of the local government’s explicit or implicit guarantees for loans to SOEs. Moreover established stock markets in the early 1990s in areas such as Shanghai and Shenzhen were almost exclusively utilised for the reform of the SOEs. Therefore for a long period private entrepreneurs were forced to depend predominantly upon self-financing, what with the restricted access to bank loans and domestic stock markets. At the end of 1999, the private sector was contributing 27% of GDP, however it only accounted for 1% of lending from banks and 1% of listed companies on the domestic stock exchanges. This situation is worsened by the burdensome process of approval, and the complete ban taken against seeking foreign capital in overseas markets.
I believe that one of the best investments I could make would be an FPI (foreign portfolio investment) into state-owned industries in China. Announced on April 23rd, the government has opened 8 state-controlled industries to investment. I’d recommend FPI (as opposed to FDI) in this venture because, while China is opening these industries up, they are not opening them up for control. Still, companies like Sinopec Ltd., a large oil company, are up to selling about 30% of the SBU that controls its filling stations, a unit valued at over $20 billion. As the middle class continues to grow and be able to purchase more items (like cars), the huge population’s demand for necessary products like these will continue to grow. Companies like Sinopec are adamant that they will not give up any control, and that’s why FPI would be preferable to FDI when it comes to these industries. Another significant reason that I’d prefer FPI over FDI in China is due to risk (political, socioeconomic, etc.) These companies say the reason they won’t lose control is because they don’t want to have to change their operational practices. With FPI, these companies won’t get paranoid that investors are trying to change them. The previous reasons are very specific, but China has general policies, procedures, and trends in place (good or bad) that make it plain for investors to see that they are wanted, and business is a priority. China has an autocratic government, which is very efficient in getting things done, so it is more conducive for companies to work in. China also has very low wage costs ($1.74 per hour). Also, China has some of the least progressive environmental regulations laws, which lowers costs. China’s GDP growth rate is still at 7.5% (14th in the wor...
At the behest of Solicitor General John Les, an inquiry was launched in February o...
Elin Sironey, “The Limit of Article 28 EC - The Ten Year Development of Keck and Mithouard,” Faculty of Law of the University of Lund, (2003), accessed 8 November 2013.
On the other hand, the company interests are at risk. In China the main key to success is to maintain good relations with the Communist parties, which they mainly control the economy. For multinational corporations they have to spend many years creating good connections in China for their business to function. For example, General Motors, Motorola, and Hewlett-Packard are conscious that they risk billions of dollars if they take a posit...
Wood, D. (2009) ‘Are We Cooked Yet?’ Treasury & Risk Management, 15(6), June 2009, p.1424
In the BB HOLDINGS LIMITED article about the Placing of US$50,000,000 fixed rate 10 per cent on unsecured Loan Notes due 2013 and the Issue of Warrants to subscribe for 7,692,308 new ordinary shares at US$6.50 per new ordinary share. At that time BB holdings was seeking to expand these operations and exploit c...
Introduction In the reading "A first time expatriate's experience in a joint venture in China" we have come to understand the nature and structure of the joint venture between the U.S.A. and China and the role that James Randolf played in strengthening and maintaining the international partnership. Controls Inc. was a subsidiary of the parent company Filtration Inc. and so was shielded from any outside competition. When Controls Inc. was given the charter to pursue its own business, they realized the need for being cost effective as a result of which they started an operation in Singapore with the name Controls Asia-Pacific with the prime objective to have a presence in the region and to study and evaluate any possibility of a joint venture. James has been an employee of Controls Inc. for the past 23 years with experience in managerial positions of about 15 years.
Most of China’s companies are backed by foreign investors. China is eliminating trade barriers, cutting import tariffs, and relaxing restrictions on trading licenses.
China's development is praised by the whole world. Its developments are not only in the economic aspect, but as well in its foreign affairs. Compared with other developed countries, China is a relatively young country. It began constructing itself in 1949. After 30 years of growth, company ownership had experienced unprecedented changes. Entirely, non-state-owned companies can now be more involved in sectors that used to be monopolized by state-owned companies.
The very beginnings of the concept of contract law can be traced back to several Latin legal principles. One of the most important of such principles is the ‘consensus as idem’, which approximately translates into an agreement between parties. This agreement synthesizes a legal relationship between the parties and involves certain
One of the primary reasons as to why consideration should not be abolished follows this idea, that parties who seek binding contracts are doing so in order to ensure the reliability of the other party. Thus, if consideration were to be abolished these agreements would be mere promises that carry no legal weight3 and undermine the essence of contract. Pao On v Lau Yiu Long (1980) provides ...
The doctrine of separate legal personality is central to corporate law and the functioning of companies in the modern world. This doctrine allows for a company, separate from its shareholders and members, to own its own property, have its own rights and responsibilities, and sue and be sued as its own entity. This means that the rights enjoyed by the company are not necessarily enjoyed by its members, and that members of a company are not necessarily liable for the actions of the company. In the recent case Prest v Petrodel, the doctrine of separate legal personality and the instances in which a court may pierce the corporate veil were discussed. Piercing the corporate veil refers to putting aside the separate personality of the company to hold a person who owns and controls a company as responsible for the actions of the company as if it were their own. In the case of Prest this concept is discussed in detail, to reflect the instances in which courts have pierced the corporate veil, and the extent of applicability of this doctrine. As reflected in Prest, the separate legal personality doctrine is a strong doctrine in corporate law that is only pierced in exceptional circumstances. However, it is also clear that the principle of piercing the corporate veil is an important one, as it allows for the court to hold responsible those in control of a company in instances where it is necessary to achieve an equitable and logi...
All the more particularly, this decides the ability to absorb misfortunes, fund its extension, pay profits to its shareholders, and develop an adequate level of capital. Being front line of defense against the destruction of a capital base from misfortunes, the requirement for high profit and earnings can scarcely be overemphasized. Although diversifying pointers are utilized to fill the need, the best and most broadly utilize indicator is a Return on Assets (ROA). ROA is employed by establishments and banks to outfit them with an important instrument for evaluating their progress, including utilization of assets and financial quality (Haque, 2014). Then again, for inside and out examination, an alternate pointer Net Interest Margins (NIM) are likewise utilized. Chronically unfruitful money related establishment’s hazard bankruptcy. Contrasted and most different pointers, inclines in gains can be hard to decipher for cars, abnormally high benefit can reflect excessive danger
UK Essays (2014) Contract Law | Contract Law Cases [Online] Available from: [Accessed Thursday 2nd January 2014]. http://www.ukessays.com/essays/law/contract-law.php#ixzz2pOUSiowF
We have seen since early 1980’s in the 2000s companies from all over the world have been investing trillions of dollars in China market. Recently we saw this demand nearly double with the last few years. Large numbers of corporations are leaving their home country and opening headquarters abroad in China. These companies include many types of industries but mainly, Software, Mining and Cosmetics industry, many big names such as Google, Microsoft and Apple also have their offices in China. Pepsi and Coca – Cola have also joined in on some of the profit. The question that is on everyone’s mind what are the reasons why foreign companies are moving to China. Thought this paper I am going to speak on the positive and negative effects we see from