Variable Interest Entity (VIE)

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A variable interest entity (VIE) is a legal business structure where an investor has a controlling interest even though they do not have the majority of voting rights in the firm. In the context of China, historically, many Chinese companies that are listed abroad and rely on offshore funding have a VIE structure, where shareholders of the company listed abroad have the ultimate controlling interest even though the same company has a domestic entity within China where the majority of shareholders are Chinese. Since there are certain sectors where foreign firms face restrictions in China (such as information technology), the VIE structure allows majority offshore-funded Chinese companies to be viewed as domestic companies and thereby operate in the Chinese markets without restrictions.