The Chinese general public knew little about the term VIE (variable interest entities) before the transfer of ownership of the online payments platform Alipay.
Financial website imeigu.com made a simple example of the term by comparing it to house purchasing. "Let's suppose you are a non-Beijinger who doesn't meet the requirements of buying a local house. Then it occurs to you that you may sign a 50-year lease agreement with a potential house seller, pay the rent all at once and then just move in. This is what we call VIE."
The VIE structure, which has been used by many Chinese Internet companies including Sina, Baidu, Sohu and Netease, allows foreign investors in China to gain a degree of control over companies they are not allowed to own directly.
The VIE structure has attracted public attention ever since a dispute erupted last May between Chinese e-commerce giant Alibaba and American tech giant Yahoo!, which holds a minority stake in Alibaba through a VIE. Under the VIE structure, Alibaba transferred its successful online payment business Alipay to a company wholly-owned by its CEO Ma Yun in order to comply with new Chinese regulations that bars foreign investment in domestic online payment companies. The dispute raised concerns among investors about the potential risks of the VIE structure.