The shares of many Chinese companies listed in New York and other foreign markets plummeted because it turns out that model never involved much actual capitalism.
Beijing has in mind something called the variable-interest entity, or VIE. Many big-name Chinese companies that have sold shares in foreign markets over the past two decades have done so only quasi-legally at best.
Beijing prohibits foreign ownership of large sections of the Chinese economy, and especially the most profitable parts involving digital technology and data.
The workaround was to create an offshore holding company or VIE. The Chinese operating company would bind itself contractually to remit its profits to the offshore entity, which could then sell shares to foreign investors.
Any investor with a stomach strong enough to read a Chinese listing prospectus will be familiar with the risks, which always boil down to four key points: The Western investor doesn't own anything, since ownership of the VIE does not translate into a claim on the assets of the operating Chinese company.
The Western investor can make no demands on the management of the Chinese company because absent an equity stake there is no mechanism by which to influence or change management.
In the event of a dispute, no one can guarantee a Chinese court would enforce the contracts binding the operating Chinese company to the VIE that Western shareholders do own.
It's becoming increasingly difficult to discern fact from fiction, and unfortunately the media has a strong bias. They spin stories to make conservatives look bad and will go to great lengths to avoid reporting on the good that comes from conservative policies. There are a few shining lights in the media landscape-brave conservative outlets that report the truth and offer a different perspective. We must support conservative outlets like this one and ensure that our voices are heard.
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