What's the difference between red chip architecture and vie?

The difference between red chip structure and vie structure lies in the different control methods. The red-chip structure is that domestic natural persons (actual controllers) indirectly control domestic actual operating companies through the establishment of overseas companies (SPV), with SPV as the main body of overseas listing financing. Vie structure is the actual domestic business entity, which is controlled by overseas listed entities through agreement, that is to say, vie structure is directly owned by domestic natural persons (actual controllers) with more than 50% equity. In this regard, we basically understand that the main difference between vie structure and traditional red-chip structure is that the wholly foreign-owned enterprise in China under the red-chip model is a shell company, and vie is directly owned by domestic natural persons (actual controllers) with more than 50% equity, so the latter has much greater control than the former.

At the moment of the development of financial market, many company bosses are trying to dismantle the red-chip structure and drive the controlling stake with vie structure, so the red-chip structure we may see in the future has become history.

1, red chip architecture

Red chip structure refers to the structure in which companies in China (excluding Hongkong, Macau and Taiwan Province Province) set up offshore companies, and then inject or transfer the assets of domestic companies to overseas companies, so as to achieve the purpose of overseas listing and financing of overseas holding companies. It first appeared in the late 1990s. In 2003, after China Securities Regulatory Commission cancelled the domestic audit procedure for red chip listing, the red chip structure was widely used on a large scale. Before the Ministry of Commerce and other six ministries and commissions jointly issued the Regulations on the Merger and Acquisition of Domestic Enterprises by Foreign Investors in August 2006 (hereinafter referred to as the Regulations), the traditional red-chip structure has always been the first choice for cross-border private placement and overseas listing. The advantage of red-chip structure over domestic enterprises directly applying for listing on overseas exchanges is that through the mode of listing by overseas holding companies, domestic business entities can avoid complex factors such as industrial restrictions on foreign investment, restrictions on equity liquidity, double approval and process between the two places, and the convergence of laws, regulations and accounting rules such as company law and securities law.

2. Big Red Chips and Little Red Chips

Red chips can be divided into red chips and small red chips. Mainland enterprises are registered in Hong Kong and listed in Hong Kong in the name of overseas Chinese holding companies ("red chips"); Mainland enterprises set up special purpose companies overseas in the name of their shareholders or actual controllers, and after controlling the rights and interests of mainland enterprises through equity, asset acquisition or agreement control, they are listed in Hong Kong as overseas special purpose companies ("small red chips").

3. The return of red chips

China Mobile is listed in Hong Kong to raise funds in Hong Kong. It had to set up such a company overseas and then go public in Hong Kong. Actually, it is listed in China. Now it wants to go public in China. This is what we call the return of red chips.