The first is to facilitate the financing of companies in China.

The second is convenience, which avoids the complicated and lengthy approval process of domestic companies' overseas listing.

The third is to maximize wealth. As long as the listing is completed and there is no restriction on circulation, it is easy to sell stocks and realize them.

Fourthly, and most importantly, domestic supervision can be bypassed.

Take domestic company A and foreign company A mentioned last time as examples. For example, Company A has online publishing business in China, and domestic laws and regulations prohibit foreign investment. However, Company A is an overseas company and there is no such restriction when it is registered locally. Therefore, by controlling the VIE structure through the agreement, Company A in Chinese mainland has realized the separation of management rights and income rights, while Foreign Company A has obtained the income and assets of Company A in Chinese mainland, but its management has not changed, nor has it impacted the business of Company A in Chinese mainland. In other words, achieving double standards through agreement control meets the requirements of both domestic supervision and overseas listing. In fact, this VIE architecture was built by Sina for overseas listing around 2000, so the VIE architecture is also called Sina architecture.

So what are the disadvantages of red chip listing?

First of all, it must be regulatory risk. For example, the Ministry of Industry and Information Technology issued a policy in 2006 to strengthen the supervision of foreign investment. Another example is the listing of red chips, which transfers domestic income overseas, which involves the problem of capital flight. Enterprises with ulterior motives may take advantage of this to transfer capital through domestic and foreign linkage channels. After this model, the State Administration of Foreign Exchange also strengthened supervision.

Another point is that the state is worried that shareholders' information will be hidden after setting up such a structure. For example, under the VIE framework, the commonly used BVI British Virgin Islands is the most relaxed place of registration in the world, with almost no tax and even no shareholder information. Some corrupt officials may use this structure to transfer assets. Under the current laws and regulations of our country, VIE framework is in a vague state, and the regulatory authorities have not said that it is not allowed. In practice, they basically adopt a tacit attitude, but at the same time they have not given a supportive attitude. Therefore, many people will think that VIE architecture faces policy uncertainty.

Another disadvantage is the backflow problem. We know that after 2008, China's domestic financial market expanded rapidly, especially after 13 and 14, the pace of financial liberalization was relatively large, and domestic financial instruments became very rich. Moreover, we also know that the A-share market in China will always be in short supply, so the valuation of the A-share market will always be higher. Many enterprises will want to return to the A-share market, but if they want to return to the A-share market, they must dismantle the VIE structure listed overseas. Breaking this architecture is often much more difficult than building a new one. The cost of dismantling VIE is very high, and the whole dismantling process will be very long. To sum up, the red-chip listing of VIE is a microcosm of the development of private enterprises in China. Enterprises will constantly create new survival and development models and tools, but they will also face various new problems in the process of creation.