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.