Variable interest entity, offshore domesticated foreign finance, and the political economy of China's internet firms: The case of Alibaba
Date
2022
Authors
Zhao, Can
Journal Title
Journal ISSN
Volume Title
Publisher
Social Sciences
Abstract
This article aims to show how the globalized securities market in general and a transnational
legal business structure named variable interest entity (VIE) in particular has challenged our
conventional understanding of “foreignness” as a geographical concept in cross-border capital flow
and ushers in a new type of foreign investment which I call “offshore domesticated foreign finance”
(ODFF). By performing a case study on Alibaba—one of the world’s leading VIE-structured Internet
companies—and mapping out the company’s fund-raising history and personnel appointment mechanism
with the help of company releases and news reports, this article shows how ODFF makes a
company de jure foreign-incorporated and -owned but de facto China-based and Chinese-controlled.
This article also demonstrates that ODFF’s primary function is to allow China-based Internet firms to
tap into international financial markets while helping Chinese entrepreneurs and managers—despite
their minority shareholdings—to control the company. These findings shed light on how financial
globalization has transformed the cross-border capital movement and corporate governance.
Description
Keywords
globalization, capitalism, internet company, cross-border capital flow, foreign investment, corporate finance, corporate governance, Alibaba, variable interest entity (VIE)
Citation
Zhao, C. (2022). “Variable interest entity, offshore domesticated foreign finance, and the political economy of China’s internet firms: The case of Alibaba.” Social Sciences, 11(3), 99. https://doi.org/10.3390/socsci11030099