China Bans VIEs in Another Drawback for Tech Companies

China plans to ban companies from going public in foreign stock exchanges through variable interest entities (VIEs). The loophole was long used by Chinese tech companies to attract foreign investors.

The ban is among a number of changes made in a proposal of China’s overseas listing rules, which may be finalized this month. Officials said the ban is intended to address concerns over data security.

Companies currently using the VIE structure will be allowed IPOs in Hong Kong if they get necessary regulatory approval. They will need to make adjustments in ownership structures to make them more transparent in regulatory reviews.

It’s unclear whether the adjustments mean a reshuffle of shareholders or delisting the “sensitive” firms. Both moves will renew fears of a decoupling between China and the U.S. in areas like technology. The proposal is still being discussed and the rules may change.

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