CSRC VIE Research Report Leaked to Media

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I suppose this was bound to happen eventually. If you recall from my post of 9/19, it was reported that the China Securities Regulatory Commission (CSRC) sent a report on VIE structures to the State Council. There was a lot of speculation about what the report meant and what would happen next, but at the time, few details of the text itself were available.

Until now. Courtesy of the Economic Observer, we can peruse the report to our heart’s content. Note that the text is in Chinese only.

If you can’t wait for a translation and do not read Chinese, iChinaStock has summarized key details as follows:

The report describes Variable Interest Entities (VIEs) as a major threat to China’s national security, but does not suggest that China’s top leaders ban the structure.

iChinaStock has translated four key reforms proposed in CSRC’s report:

1) Chinese companies under the VIE structure must receive approval from by both the Ministry of Commerce (MOC) and CSRC to list overseas.
2) Old rules for old companies (those already listed overseas) and new rules for new companies (those not yet listed overseas). In other words, firms that are already listed overseas would be exempt.
3) Encourage Chinese Internet companies to list on the domestic market.
4) A few companies that have reasons and desires to list overseas, such as the internet companies that are temporarily unable to list domestically, should be able to list directly in foreign markets. Note: the meaning of this “direct listing” is still unclear.

A couple of important caveats. First, I haven’t read the report yet (will try to get to it tonight) and can’t vouch for the iChinaStock summary. Second, this is apparently a research document only, which may be acted on or ignored. Third, this is the opinion of only one player in this debate, CSRC.

If the report contains no surprises, I may just append a quick update to this post. If there is something worth a lengthy discussion (unlikely), look for a standalone post.