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Using a complex investment vehicle known as the variable interest entity — or V.I.E.
Mergers & Acquisitions RISKS TO INVESTORS IN CHINA "Using a complex investment vehicle known as the variable interest entity — or V.I.E.
Perhaps the most important is the creation of a complex investment vehicle called a "variable interest entity" (VIE).
Variable interest entity arrangements are a popular way for foreign investors to circumvent China's restrictions on foreign ownership in certain sectors.
The variable interest entity structure may be the root of the problem when foreign investors own shares in Chinese companies, but it is only part of it.
The problem with this structure, known as a variable interest entity, is that it may be illegal under Chinese law and has been criticized by Chinese regulators.
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Goldman has large, illiquid off-balance-sheet exposures, too, known as Variable Interest Entities.
Since 2010, Shanghai's arbitration board has invalidated two variable interest entities that had been used by foreign companies to control onshore businesses.
While variable interest entities in such cases are technically owned by the Chinese, foreign-owned corporations maintain de facto control through a series of contracts that can involve equity pledges, profit assignments, purchase options and service or consulting agreements.
The risks that banks would have taken on under the old system — when banks made loans and profited only as they were paid back — had been transferred through a bewildering wilderness of options, swaps, swaptions, specialized investment vehicles, collateralized debt obligations, variable interest entities and who knows how many other instruments.
Beginning in 2000, when Nasdaq listed the Internet company Sina.com, most Chinese companies in restricted sectors have relied on complex investment vehicles known as variable interest entities, or V.I.E., as a way to sell shares to foreigners and get around China's laws on outside investment.
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