Foreign investors seek alternative to China's VIE structure

Sina Corporation won many plaudits when it became the first Chinese online media company to list on Nasdaq, back in 2000. The secret behind its success was the variable interest entity VIE structure, which it used smartly to bypass restrictions at home.

Under the VIE arrangement, nominee shareholders, who are mostly Chinese entrepreneurs, hold shares on behalf of foreign investors under a custodial agreement. In the early days, the structure seemed ideal for Chinese companies operating in sectors closed to foreign investors, such as the internet, education and media industries, giving them the opportunity to list abroad without running afoul of rules against foreign ownership.

After the...