The VIE structure was created two decades ago to help skirt Chinese rules restricting foreign investment in a number of sensitive industries such as media and telecommunications.
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The chairman of the US Securities and Exchange Commission (SEC) Gary Gensler said via his official Twitter account that he has asked SEC personnel to stop processing China mainland companies' registrations for US IPOs through shell companies. He also pointed out that when Chinese companies are expected to go public in the United States, they need to disclose more detailed information to protect American investors.
Gary added that some Chinese operating companies are registered and listed with the SEC through shell companies. American investors mistakenly believe that they are investing in a Chinese company but in reality, the company they invested in might be a company registered in the Cayman Islands. He requested that mainland enterprises should fully disclose the flow of funds between entities in the Cayman Islands and domestic companies on the mainland.
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