1. Paul Gillis knows as much about Variable Interest Entities (VIEs) as probably anyone alive.  Maybe more.

2. Chinese companies going public in the United States typically use VIEs.

3. Paul Gillis recently did a great piece for the Wall Street Journal, Following the Money in Chinese Listings, in which he expresses concerns about China VIEs and the companies that employ them:

Under this corporate structure, deployed by each IPO deal so far, Western investors don’t own the Chinese company. Instead, they buy shares in a company with a contractual right to the profits generated by the Chinese company. This is supposed to circumvent Beijing’s restrictions on foreign ownership in many industries.

The success of recent IPOs suggests that investors have become comfortable with the risks of VIEs, but those risks are significant and ongoing. Investors have been burned by the VIE structure in the past when the contracts were found to not provide the promised control.

 4. I would urge (command would not be too strong a word) anyone contemplating investing in any China IPO or publicly traded company to read Gillis’s article. I read it and it only reinforces for me that I have zero interest in investing in any of those companies. I realize that the shares of some of those companies will no doubt soar, but I am just not willing to invest in a company with a foundation that I analogize to quicksand. Too risky. But hey, that is just me.
If you want to know more about VIEs, check out China VIEs. Avoid, Avoid, Avoid and VIEs In China. The End Of A Flawed Strategy. Happy investing, everyone.
Print:
EmailTweetLikeLinkedInGoogle Plus
Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.