“The risks of variable interest entities have been known for some time… however these risks require clarification from China before they can be taken seriously.” How accurate is this and what does it mean for the future of variable interest entities? Introduction Variable interest entity (“VIE”) is a well-established and widely used investment structure employed in foreign investment in China. These are a series of contractual agreements whose main objective is to circumvent the investment restrictions that China has imposed on foreign ownership in particular sectors of the Chinese market. As a result, the legal validity of VIEs has been a subject of controversy since its inception. Sina Corporation was the first company to successfully navigate the uncertain environment surrounding the VIE in 2000, through its public listing on the NASDAQ. Here the Chinese authorities have generally approved the use of the facility and as a result the facility has been widely implemented in all foreign investments in China. This has helped, among other things, some of China's most renowned enterprises by facilitating the acquisition of foreign capital and the finalization of offshore listings, despite legal restrictions. However, the intermittent public debates between different parties to the VIE agreement and the unclear and often contradictory approaches of various regulatory bodies highlight the drawbacks associated with VIEs. At the time of the research, interested parties are still operating on a speculative basis. However it has become clear that people are becoming increasingly concerned regarding the legal flaws underlying this structure. This...... middle of paper ......vat businesses due to ideological concerns and government interference in relation to bank loans and the presence of explicit or implicit local government guarantees for loans to state-owned enterprises. Furthermore, the stock markets established in the early 1990s in areas such as Shanghai and Shenzhen were used almost exclusively for the reform of state-owned enterprises. Therefore for a long period private entrepreneurs have been forced to rely predominantly on self-financing, with limited access to bank loans and national stock markets. At the end of 1999, the private sector contributed 27% of GDP, but accounted for only 1% of bank loans and 1% of companies listed on national stock exchanges. This situation is aggravated by the burdensome approval process and the absolute ban on seeking foreign capital in foreign markets.