“The risks associated with variable interest entities have been known for a long time… however, these risks require clarification from China before being taken seriously” . How accurate is this and what does it mean for the future of variable interest entities?IntroductionThe variable interest entity (“VIE”) is a well-established and widely used investment structure used in foreign investments in China. This involves a succession of contractual agreements whose main objective is to circumvent investment restrictions that China has imposed on foreign ownership in particular sectors of the Chinese market. Therefore, the legal validity of VIEs has been a point of contention since its inception. Sina was the first company to successfully investigate the uncertain environment surrounding VIE in 2000, through its public listing on NASDAQ. Here, Chinese authorities have generally approved the use of the structure and, as a result, the structure has been widely implemented across foreign investment in China. This has helped, among other things, a number of China's most renowned companies by facilitating their acquisition of foreign capital and finalizing their overseas listings, despite legal restrictions. Nevertheless, intermittent public squabbles between the different parties to the VIE agreement and the unclear and often contradictory approaches of different regulatory bodies highlight the drawbacks associated with VIEs. At the time of the study, the parties involved are still operating on speculation. However, it has become clear that people are becoming increasingly concerned about the underlying legal flaws in this structure. This...... middle of paper ......ivate businesses due to ideological concerns and government interference in bank lending and the presence of explicit or implicit local government guarantees for loans to public companies. Furthermore, stock markets established in the early 1990s in regions like Shanghai and Shenzhen were almost exclusively used for state-owned enterprise reform. Therefore, for a long period, private entrepreneurs were forced to rely mainly on self-financing, with limited access to bank loans and national stock markets. At the end of 1999, the private sector contributed 27% of GDP, yet it represented only 1% of bank loans and 1% of companies listed on national stock exchanges. This situation is aggravated by the cumbersome approval process and the total ban on seeking foreign capital in foreign markets...