MOFCOM's VIE mention explained

Variable interest equity (VIE) structures are popular with foreign investors looking to circumvent Chinese restrictions on foreign investment in value-added telecommunications businesses (VATB), which comprise a wide range of services such as e-mail and data storage. But investors fear that the structure violates the spirit of Chinese law and is increasingly scrutinised by Chinese regulators.

The Ministry of Commerce's (MOFCOM) mention of VIEs in its review of US retailer Wal-Mart's acquisition of a further 33.6% stake in Niuhai Holdings is a first for a PRC authority. Since the review was released on August 13, investors have been puzzled by what the VIE mention could mean for the structure's future.

Foreign investment restrictions for VATBs

But counsel noted that MOFCOM's VIE mention means that the structure is not immune from merger control.

MOFCOM reviewed Wal-Mart's latest acquisition because it increased its shareholding in the target to 51.3%. Niuhai, through its wholly-owned subsidiaries Newheight HK and Niuhai Shanghai, owns Yishiduo's popular online shopping platform, Yihaodian. With the purchase, Wal-Mart would control the online direct shopping business of Yihaodian, but must not participate in its consumer-to-consumer platform, similar to that of eBay or Amazon.