China’s Ministry of Commerce has released draft rules for regulation of the complex corporate structure allowing companies in sectors off-limits to foreign investment–such as the Internet–to effectively list on foreign stock exchanges, The Wall Street Journal reported. In so-called variable interest entities (VIEs), a Chinese company holds the necessary business permits and licenses while an offshore holding company offers shares to investors abroad; contractual agreements funnel profits from the former to the latter and on to shareholders. The Chinese side often controls the holding company, so the draft rules’ focus on whether control of the VIE resides with foreign investors will likely amount to tacit endorsement of the workaround, used by Alibaba (BABA.NYSE) for its US$25 billion IPO last year.
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