Return path for red-chip structures requires some sound compliance

With changes in policies towards variable interest entities (VIEs) in China, and in foreign capital market environments, the dismantling of well-erected red-chip structures followed by the seeking of domestic listings has become the choice of quite a few enterprises.

Compliance in the processes of erecting and dismantling a red-chip structure are the focus of attention of regulators. When carrying out an analysis of compliance, particular attention needs to be paid to investment oversight, administration of foreign exchange registration, tax issues, shell company issues, extent of information disclosure, special attention on VIE enterprises, etc.

Investment oversight

This mainly includes: approval and registration procedures for offshore investments designed when erecting the offshore red-chip structure; approval and registration procedures for the direct foreign investment or cross-border mergers and acquisitions (M&A) involved in investment round tripping to establish a new, or acquire an existing, domestic enterprise; and approval and registration procedures involved when returning to China and dismantling the red-chip structure.

Sun Jian is a senior partner and Wang Junlu is a lawyer at Zhong Yin Lawyer