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

The difference between red chip architecture and vie architecture lies in the different control methods. Red-chip structure means that domestic natural persons (actual controllers) indirectly control domestic actual operating companies through overseas companies (SPV), which is 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.

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) who hold more than 50% of the shares, so the latter has much greater control than the former. In the current development of financial market, many company bosses are trying to dismantle the red-chip structure and use vie structure to drive the controlling stake. Therefore, the red chip structure that we may see in the future has become history.

[Extended information]

Vie (Variable Interest Entity), that is, "VIE structure", also known as "agreement control", is the actual or potential economic source owned by an enterprise, but the enterprise itself does not completely control this interest entity, which refers to a legally operated company, enterprise or investment. 20/kloc-in March, 2003, Li Yanhong put forward the proposal of "encouraging private enterprises to go public overseas (VIE) to cancel the policy restrictions on investment, mergers and acquisitions, qualification issuance, etc.", which triggered a heated discussion in the industry. Under the legal norms of China, the structure of VIE is still in a "gray" zone. Although there are some tentative cases, the China court did not confirm the legality of the control agreement.

Red chip structure is the oldest private equity transaction structure. Since the late 1990s, the red chip structure has been used. In 2003, China Securities Regulatory Commission cancelled the domestic audit procedure of red chip listing, which directly stimulated the wide application of red chip model. Until August, 2006, the Ministry of Commerce and other six ministries and commissions issued the Regulations on Merger and Acquisition of Domestic Enterprises by Foreign Investors (Order 10 for short), and the red-chip structure was the preferred structure for cross-border private placement and overseas listing.