“Created to circumvent ownership restrictions of companies in sectors considered sensitive by the Chinese government, VIEs are contracts that give a foreign-listed company control of a local company without direct share ownership.”
The VIE structure does however present real legal risks, as, in case of insolvence, foreign investors would find no real assets in the company. See the case of Dongfang Shipbuilding.
Other discussions on the VIE:
China law blog: http://www.chinalawblog.com/2011/10/to_vie_or_not_to_vie_in_china_that_is_the_question.html
China accounting blog: http://www.chinaaccountingblog.com/weblog/are-vies-a-going-concern.html
The SCMP reports on 17 August 2017 that “China orders ministries to open up more of economy to foreign investors“, based on the 《国务院关于促进外资增长若干措施的通知》(the “2017 FDI Circular”, hereafter) released by the State Council, which is the official name of China’s Central Government. The Circular offers 22 measures aiming to attract more foreign investment to China as well as comfort foreign investors in China who have expressed increasing frustration over market access limitations and discriminations against foreign companies.
Given the increasingly tighten political environment within China, it’s curious whether these measures would indicate significant policy change, or just indicate China’s desperation for more foreign investment.