{"id":10322,"date":"2011-09-15T03:09:40","date_gmt":"2011-09-15T03:09:40","guid":{"rendered":""},"modified":"2011-09-15T03:09:00","modified_gmt":"2011-09-15T03:09:00","slug":"A-Chinese-Listing-Fitness-Test-","status":"publish","type":"post","link":"https:\/\/asiancemagazine.com\/?p=10322","title":{"rendered":"A Chinese Listing Fitness Test"},"content":{"rendered":"

Western accountants and underwriters have been too quick to bring companies to market before they’re ready.<\/strong> Western regulators are grappling with a growing list of frauds at Chinese companies listed overseas. So far they have focused on cleaning up individual cases. But these scandals should prompt a much deeper rethink about Chinese listings in Western markets.<\/strong><\/p>\n

The basic problem is that existing rules aimed at ensuring the suitability of companies for listing are inadequate and aren’t protecting investors from the huge risks that exist even at Chinese companies that are entirely legitimate. A recent example illustrates the pitfalls.<\/p>\n

Jiayuan.com is by all accounts an entirely above-board Chinese company. It’s purportedly China’s largest online dating platform, and it raised $78 million in a Nasdaq listing (ticker symbol: DATE) in May. It boasts a famous brand name, a smart founder and a plausible business model. Yet even for this company, where there is not a whiff of any misdeed, the prospectus still included some red flags beyond the standard developing-country disclaimers about uncertain rule of law and the like.<\/p>\n

Consider what seems to have been some questionable lawyering surrounding Jiayuan.com’s corporate structure and brand. Because foreign investment is technically forbidden in the Internet services sector, Jiayuan.com created a “variable-interest entity,” or VIE\u2014a common feature of many Chinese listings.<\/p>\n

Under this structure, the operating part of the company and the overseas listed part technically are two completely separate entities. The Chinese-owned part signs a series of contracts with the listed entity to transfer revenues in a way that allows the books of the two companies to be consolidated under U.S. accounting rules. It’s a risky structure since the foreign shareholders don’t actually own the Chinese company.<\/p>\n

SOURCE<\/a>
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