China’s Foreign Ownership Restrictions and the VIE Structure

Foreign investment in the People’s Republic of China (the “PRC”) is either restricted or prohibited in several industries such as the telecommunications industry, which includes most internet focused businesses. The primary regulation with respect to foreign investment restrictions in China is the Special Administrative Measures for the Access of Foreign Investment (Negative List) (外商投资准入特别管理措施 (负面清单)), as amended from time to time on a regular basis, which provides a negative list that contains the prohibited and restricted categories of industry for foreign investment. The telecommunication industry, for example, is classified as restricted, while internet cultural activities and online publishing services are classified as prohibited.