Beijing is planning to introduce a new blacklist aimed at restricting the main path used by Chinese start-ups to bring in non-domestic capital and list overseas, in an attempt to reduce the role of foreign shareholders in the next generation of tech companies, reports the Financial Times. The blacklist will target new companies in sensitive sectors that use so-called variable interest entities (VIEs) to run their China businesses, according to four people familiar with the matter. They did not expect the changes to apply to existing companies.
VIEs are a legal structure that has been used for decades by Chinese tech groups—including industry leaders Alibaba and Tencent—to circumvent foreign investment restrictions and raise billions of dollars from international investors.
It was not yet clear how wide-reaching the list—which is being formulated by Chinese authorities including the state planner, commerce ministry, securities regulator and central bank—will be, but people familiar with the matter said the new negative list for VIEs could include sectors that were data-intensive or involved national security concerns. The US has taken similar measures to restrict Chinese investment in Silicon Valley start-ups.