Draft foreign investment law aims to clarify status of VIE

On Jan 19, the draft of China's Foreign Investment Law was released for a public comment period that runs until Feb 17. An official explanation was also released that highlights the key points for interpretation.

One of the most significant changes in the draft legislation is the adoption of a de facto review of the variable interest entity, or VIE, structure of corporate ownership. This is a workaround structure that is used by foreign and Chinese investors in many industries where foreign direct investment is restricted or prohibited in China.

The current draft legislation states that domestic entities controlled by foreign investors must be engaged in non-prohibited industries. Previously, VIE structures were used to enable foreign investors to invest in almost any industry, even prohibited ones.