China (Finally?) Putting an End to Foreign Investment in the Internet

Great post about in ChinaLawBlog about how China is putting an end to so-called variable interest entities (VIEs) that most of China's large internet companies, including Tencent, Sina and Baidu, used to IPO overseas and raise funds from foreign investors.

Yet, the remarkable fact is that these highly capitalized, powerful companies are all operating illegally (as we have pointed out many times on this blog). However, all of this illegal activity has been conducted openly and with the tacit acquiescence of the PRC regulatory authorities. As a result, the big issue for now is what is to be done about the existing VIE entities in China that will be rendered illegal if the Draft is adopted in its current form.

Not only has the foreign internet been de facto banned from China - now all of the big "local" Internet companies have been officially declared illegal. Tough time to be an Internet entrepreneur (or user!) in Mainland China.

I got tipped off about this change in a Bloomberg article saying how great China's overhaul of foreign investment rules will be.

“It is a huge change,” Antony Dapiran, Hong Kong-based partner with law firm Davis Polk & Wardwell, said in an e-mail. “It pushes China so much closer to being a ‘normal’ place to do business.”

Closer to "normal" unless you want to use the Internet or do business in that space.