What impact will the new Foreign Investment Law have on VIE structured companies?

If the new Foreign Investment Law is really put into practice, it will have a huge impact on companies with type 4 VIE structures.

1. VIE-structured enterprises founded by foreign investors will face the situation of being unable to obtain legal business licenses, such as Youku, which will limit the immigration tendency of entrepreneurs to a certain extent;

2. Most of the VIE structures controlled by foreign-funded companies were originally founded by Chinese people and later sold to foreign venture capital institutions. According to the new regulations, they will no longer be able to operate relevant licenses;

3 For enterprises founded by Chinese and listed abroad, but whose operating rights are controlled by foreigners, they may be recognized as foreign investors and lose relevant operating qualifications; Tencent Maker Space is a platform for entrepreneurship.

4. Although domestic VIE structure startup companies controlled by individuals can be directly recognized as Chinese investment enterprises, eliminating the impact of the original VIE structure on business licenses, in the long run, they will also lose access to Opportunities for capital injection from foreign venture capital institutions.

In general, if this law is implemented, it will actually reflect the will of the state to a certain extent, that is, the state encourages and hopes that innovative companies that originally planned to be listed overseas can apply to domestic RMB funds to Instead of US dollar fund financing, it is listed on the domestic capital market instead of Nasdaq.

On the one hand, it facilitates the state’s supervision of these enterprises. On the other hand, it also allows domestic investors to participate and share the dividends of innovative enterprises. This is in line with the recent push by the domestic capital market. The registration system reform is highly consistent with the argument that "VIE structured companies return to A-shares".