On July 22, 2020, China’s State Administration for Market Regulation (“SAMR”) published its unconditional approval of the concentration of operators in the Shanghai Mingcha Zhegang Management Consulting Co., Ltd. and Huansheng Information Technology (Shanghai) Co., Ltd. Newly Established Joint Venture Case (the “SMZ Case”). This is a major regulatory development in China in relation to the legitimacy of the VIE structure.
You may recall from our previous alert that the SMZ Case marked the first time that SAMR officially accepted a merger control filing for concentration of operators (an “AML Filing”) where one of the parties had adopted the VIE structure.
Our previous observations still hold true today – having now not only accepted but unconditionally approved an AML Filing involving a party that has adopted the VIE structure, it is even more likely that SAMR will step up its enforcement actions and expect transactions involving parties with VIE structures to more proactively assess their situations and make AML Filings if required. Market participants should refresh the advice they previously obtained on AML Filings with respect to transactions involving parties with VIE structures to confirm whether the “no filing strategy” that up until now has been widely adopted is still the best strategy.
Looking beyond AML Filings, based on actions of various regulators in the last couple of years, including SAMR, the Ministry of Commerce and the China Securities Regulatory Commission, we think there is clear evidence of a consensus among regulators in China that the VIE structure is acceptable.