Bulls in the China Shop

In the book Big Money Thinks Small very well known fund manager Joel Tillinghast has the following to say on the VIE structure (page 94)

Foreigners are not allowed to own certain Chinese technology or communications firms. Although you can invest in a whizzy Chinese Internet stock like Alibaba, Baidu, or Ctrip, what you own is a variable interest entity. All of the licenses and permits to operate in sensitive industries are legally held by a Chinese company. Foreigners buy shares in a holding company, which can be domiciled outside of China and receive fees and royalties from the Chinese company but doesn't own it. Exactly what that means is up to the Communist Party.

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