Essay on Foreign Investment in China: The Variable Interest Entity

Essay on Foreign Investment in China: The Variable Interest Entity

Length: 1082 words (3.1 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

“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?

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...

... middle of paper ...

...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.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Effects Of Interest Rate On Investment Essay

- PROVISIONAL TITLE An analysis of the effects of interest rate on investment in Zimbabwe (2009-2015). BACKGROUND AND PROBLEM STATEMENT Since the adoption of a multicurrency system in Zimbabwe in 2009, the Central Bank’s power to control or influence interest rates structure disappeared. It is the monetary policy instruments that give the direction of interest rates in an economy. The broad money supply is neither an option because of the simple reason that the Central Bank cannot influence that anymore due to the multicurrency regime that the country embarked on in 2009....   [tags: Investment, Economics, Inflation, Interest]

Better Essays
938 words (2.7 pages)

Government Controls And Government Control Essay

- In every country investment of life insurance funds has been subject to government control, although the nature and dimension of such control have differed from country to country and from time to time according to circumstances. The main object underlying such control is to safeguard the interest of the insured against any embezzlement or misuse of funds by unscrupulous insurers for their own benefit. The government, therefore, must maintain strict vigilance upon the manner in which these funds are utilized....   [tags: Investment, Insurance, Risk, Pension]

Better Essays
958 words (2.7 pages)

Essay on A Variable Interest Rate Home Loan

- What is a Variable Interest Rate Home Loan. A variable interest rate home loan (sometimes also referred to as a "floating" or "adjustable" rate home loan) is a very popular product in the lending market and a very competitive product offered by most of the lenders/credit providers. Who is Suited to a Variable Interest Rate Home Loan. This type of home loan is a perfect fit for: >> First-time home buyers who just want a home loan product that is simple and not confusing to manage >> People who just want to stay settled and are not willing to move whether in their work, home, personal life or they are not willing to move to another lender What Should I Consider When Choosing the Loan....   [tags: Interest, Mortgage loan, Loan, Debt]

Better Essays
748 words (2.1 pages)

Variables Of Interest As Dependent Variable Essay

- This study considered two variables of interest as dependent variable: 1. APR_outcomes_sixpoint 2. APRoutcomes_binary. Variable 1 is the APR’s project outcome rating in a six-point scale (1-6), and Variable 2 is the APR’s project outcome rating in two-point scale (1-2). GDP per capita and the “WGI-Government Effectiveness” was merged with the APR 2015 dataset as external independent variables. Apart from GDP per capita and WGI, this study considered the following variables from the APR 2015 dataset as the independent variables: 1....   [tags: Statistics, Statistical significance]

Better Essays
703 words (2 pages)

How Banc One Use Following Investment For Managing Interest Rate Exposure

- Banc One use following investment to manage interest rate exposure. In the early 1980s, Esty, Tufano and Headley (1998) mentioned thatit managed its exposure to interest rate risk by adding balancing assets to its investment portfolio until it felt it had enough fixed-rate investments to offset its fixed-rate liabilities. In 1983, Banc one began to use interest rate swaps to manage interest rate exposure. Swaps would be discussed in the later paragraphs. In 1986, Mortgage-Backed Securities(MBSs) was introduced....   [tags: Investment, Bond, Asset, Interest rate swap]

Better Essays
1157 words (3.3 pages)

The Trend Of Investment Of China Essay

- Introduction The research topic is ‘The trend of investment in China’. And this research project question is ‘why investment has become to a trend in China’. Because of the development of technology and a growing economy in the past decades, Chinese people have extra money and the ability to invest more (HAO, 2006). There are three hypothesizes for this question. One is the impact of China’s technological development on the way people handle their finances, which offers convenient ways to do investment....   [tags: Investment, Stock market, Stock market index]

Better Essays
1115 words (3.2 pages)

Kenya: Chinese investment or Western Aid Essay

- The purpose of this paper is to evaluate how the growing Chinese presence in Kenya affects the United States’ international interests. In order to do this, we must look at how China was able to create such a presence, what the U.S. did or failed to do to alleviate this, Kenya’s view on both the U.S. and China, and if the U.S. would benefit from expanding or decreasing economic investments in the country. While the United States has a long-standing foothold on the oil in Africa, China has been dominating the other natural resources available for the past 20 years (Bhorat 2013)....   [tags: Investment, China, Kenya, PRC]

Better Essays
874 words (2.5 pages)

2016 Investment Strategy On China 's Stock Market Essay

- 2016 Investment Strategy on China 's Stock Market I. Introduction China 's stock market is still an emerging market, not as mature as US stock market. So, there are several factors U.S. investors should consider when making investment in China. (1) Institutional investors are underdeveloped and individual investors account for a large proportion in China’s market. 80% of the trade volume in China’s stock market is from individual investors, while institutional investors account for 70% of the trading volume in the U.S....   [tags: Stock market, Investment, Stock exchange]

Better Essays
1397 words (4 pages)

General Electric's Potential Investment in The People's Republic of China

- China is the best country among the BRIC's for GE to focus its investment. General Electric is a large conglomerate of companies which spans different industry. The industry behemoth is divided into 4 business units with GE Capital, GE Technology Infrastructure, GE Energy and NBC Universal. All of its business units if spun-off into its own company would rank in Fortune 500. The company's products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products....   [tags: Business Investment]

Better Essays
2187 words (6.2 pages)

Foreign Direct Investment in China Essay examples

- Foreign Direct Investment in China 1.0 Introduction I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website ( published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market....   [tags: International Trade Globalization FDI ]

Better Essays
1419 words (4.1 pages)