Transcript: How China's First Internet Companies Went IPO in the US

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The variable interest entity sounds like a boring term an accountant or lawyer might use. Well, it is an accounting term but it's anything but boring. When you know how it's used in the real world. It's the key to how all Chinese internet companies have structured to go IPO outside of China for the last 20 years. Let's just say it's a bit of a clunky workaround to deal with restrictions on foreign investment in the internet space in China. And despite its clunkiness, its still going strong today. We'll get into the notorious Alipay,SoftBank, Yahoo story and others where the VIE was center stage in that drama. Check it out with our guests, Ma Xiaohu, one of the leading early technology lawyers in China, who along with a few others had to come up with all these wonderful structures to enable that first batch of Chinese internet IPOs to happen. I'm your host art dicker a corporate and technology lawyer based here in Shanghai and welcome to another episode of Ganbei.

Welcome everybody to another episode of Ganbei. And this podcast edition is also a joint effort with the China Business Law Podcast. Today my guest is Ma Xiaohu who is a partner at Huizhong Law firm and is currently in Beijing. Xiaohu was also a partner at Morrison Forrester there for many years, 25 years in total. He built up the mainland China practice there and I am an alum of Morrison Foerster also in the Beijing office a few years back, welcome Xiaohu.

XIAOHU:

Sure, thank you. Thank you for the invitation. Thanks to everybody. 

ART:

Yeah, we are we are thrilled to have you on because we're going to talk about a topic called VIEs, variable interest entities, which sounds like a boring technical topic. But actually, it's anything but boring. When people will understand more what it's used for. It's really the structuring mechanism that helps Chinese internet companies go public and list overseas traditionally, on bigger capital markets like the US on NASDAQ and so forth. 

Typically, global venture capital funds need to invest in a structure like a Cayman company, or other kinds of common law jurisdiction where it gives flexible shareholder rights, that's a great structure to do fundraising and then eventually to IPO outside of China. The catch is that in China, to hold the operating permit to run an internet business (an ICP permit or other different permits), you need to have a locally owned company more often than not. 

And that means that the founders would need to be the owners of the local company that has the operating permit. But if that company, were having an offshore parent company outside of China, it would not be able to hold that permit. So the solution is a variable interest entity. In a nutshell, it links through contracts the offshore structure we just talked about with the on an onshore, local company that holds the operating permit, it allows control through these contracts. 

It allows capturing of the profits for this business now for the interesting stuff, Xiaohu you were there from the beginning when this idea was bouncing around, or some form of this idea was bouncing around to get around these rules and limitations on foreign ownership of internet companies in China. Can you walk us through how these ideas first started and the problems that Chinese founders were facing in structuring their companies to go for an eventual IPO outside of China?

XIAOHU

Sure, of course, I think you just gave a very good introduction on what it is. It’s complicated if people aren’t familiar with this. But basically, VIE is an accounting concept. So people just use it, to use a phrase to understand and trying to piece things together using a short phrase trying to make people understand what it is. But while we start to create the structure, there was no such concept. 

Here it is entirely driven by the market, by the need of the client as the internet blooming started in the US primarily in California and also the East Coast. So it's the late 90s. And in China, basically, those kind of young smart people they first understood the internet concept from us are trying to build up the similar model as a similar business in China. The typical example is, for example, Soho, calm Charles Chan, who was a student at MIT, as far as I ever understood, he build up actually first in Massachusetts while he was a student there. And those local pioneer William being of the 90s, he retired, he resigned from China Telecom and start-up his business.

So they all started from a different perspective, but, or try to run the internet business in China, they need funding as if there is there was no incomes, real cash incomes for those businesses at the moment, this is driven by the concept that you just do internet and people have better and better expectation on your future. So they will invest in your system premium by the model in the US and the listing on NASDAQ, all those kinds of stuff. So the funding was already available at the offshore level, at that moment, there was no local VC, no local people understand why they wished to invest in a company, they don't have a cash income. 

And so those people do invest in the US, including those people, Hong Kong, they will wish to invest in thosecompanies doing the similar business in China. But they need a mechanism to make that work, for example, as said, so who was a company incorporated in Massachusetts, how they will be able to operate in China. And that is as a local company, how they will be able to raise funding at the international level. 

So people come to us as lawyers, and we were one of the premiers in the market and trying to introduce the California venture capital model into the market at that moment. So, the question is for lawyers, how you will be able to build up something that will work for both companies and investors. So, we will need to go through the PRC regulatory model as well as the international investment model and to make that work, and then we understand there are going to be offshore holding company, which will be able to get the funding. And also with internationally accepted corporate governance as well as stock options scheme, all those kind of concepts usually people will understand accepted in California, but also you need to have a local company, which will be able to work in China. 

So the gap is pretty big and China government has a lot of restrictions on foreign investment. So basically,although the law was not very clear at that moment, back to 1998-99. But we understand it is not possible for foreign companies directly. Having a WFOE, a wholly foreign-owned enterprise and be able to run operate such a business, we understand that the WTO negotiation, China is negotiating with the US and a lot of other countries that they will permit fully 49% for basic telecom and 50% for value-added telecom company. That's applied to the internet company at the moment. So we understand the most possibility to set up a joint venture in China is 50%.

And also we try elementary how to follow the time interval and the others and others that requirement which bevery difficult for foreign investors to accept if only capturing 50% of the revenue and also subject to the complicated joint venture and regulatory environment. So we will need to be creative and make that work. So at that moment, we had a few cases going on. We were as I said, were one of the leaders in the market at that moment trying to explore the possibility there was no established model as we know, so we have to work out where carefully is the PRC Council and trying to find a way so basically, based upon our understanding of the China regulatory environment, as well as the need of international investors, we believe the possible concept to build it up is we have kind of internationally accepted offshore structure. 

And then we have a local company ownedby the founders of the offshore company, just make sure their interest is the same, and then we just build up the bridge. So what's the bridge? We believe could go with technology cost. In other words, we will have an onshore entity under the offshore holding company, WOFE, which will has all of the technology, the internet company will need to operate a business in China, which includes the technology to build up the website to maintain the operation of the business. 

And also daily maintenance support sometimes even including a domain name, all the others, whatever we could imagine, we just put those things together. Yeah, in other words, all the IP all of the funding is available as offshore structure, we will have an onshore contract between the WFOE and the company who has the license, we called ICP license, at the very beginning, there was no such as license, but whatever it is, you need an onshore entity to run the business. So we build that relationship goes through various contracts, which including five or six contracts created by our lawyers. And we believe that's going to make sure all the revenues will pass through those contracts and go to the offshore structure.

And also, we have a lot of discussion with the auditors, trying to have us trying to put the offshore company, the ICP company into the group, although there's no equity ownership, we understand from the content that they don't require strictly equity ownership, what they care about is real control is whether you have real control on the operation, and daily maintenance of the company. So that's why we set up those corporate structures and the contractual relationship to make sure they will be able to fulfill the requirements of the control by the accounting rules. So, it is a joint effort, and we put the structure in place, there were a lot of discussions. 

And also, we will make sure this technology arrangement will fulfill the Chinese government's demand and the requirement to encourage the advanced technology to be imported into China. Soin other words we just make is fulfill the requirement that China encourages foreign investors foreign investment in such a particular sector. So that's how we set up the structure in place. As I mentioned in my article, artists know this structure was first into place into a company we call trade, which we call certain financing the capital offering for NASDAQ listing for this company, but unfortunately, this company was not able to be listed on NASDAQ due to various reasons. So this company is the first company to adopt this structure with a friend of mine and Mr. Lu at the Commerce & Finance Law Firm, who is the local lawyer. So both of us handle all of the legal work. So we all work together in together with the bankers. Of course, we just put those things together, but bankers, rely on our judgment from the law and planning perspective.

Gotrade actually was the first one we have the documents in place. And but Gotrade was not successful. And then as I mentioned, in my article, one of the bankers that worked for Bear Stearns just laughed and laughed at the investment bank. And so we work together again with Mr. Lu at Commerce & Finance. And so we copy the model of Gotrade and legally I think we believe yeah, okay. But it is pretty new. And the while we try to put everything together, and you mentioned long for IPO, the bank, the banks, the bankers, the leading bank was Merrill Lynch at that moment for this for the IPO so they believe they will need a certain blessing from the Chinese government because they will not be able to afford they did a listing and the Ministry of Information Industry at the moment or from, the Minister of Commerce, just jump on saying, hey, you guys, this thing is either illegal and our trend is long. 

So they will not be able to afford such a risk, however, is not easy to get a blessing for the Chinese gone as if you understand Chinese regulatory environment is very difficult for bureaucrats trying to endorse anything new, which has no clear legal structure and legal background in place. They will not appreciate a clever effort.

ART:

It's only downside for them right toapprove something. 

XIAOHU:

They don't want to take any risk.Unless you are lucky. You need a very creative and also very smart and veryknowledgeable bureaucrats, which actually, we are lucky because at that moment, CSRC - China Securities Regulatory Commission just like SEC in the US at that moment by the deputy chairman, when he used to be a lawyer, actually, he I understand he was the first PRC national admitted in the New York Bar after 1949 and the communists took over China. He was a pioneer in the area, he worked for law firms, he worked for banks. And then he was the vice chairman at CSRC at that moment, and in charge of matter so we got our bankers and leading banks at Merrill Lynch at the moment meeting bankers, so they will be able to access how she came because he used to be a banker at the BOC international in Hong Kong as well. So they only they probably knew each other in New York. So they also work together in Hong Kong. So they are all they're professionals, they know each other very well and they will be able to share information is to be able to have a dialogue in a professional way. 

That's my understanding, although I didn't get into that personally. But my understanding is there were some conversations and discussions and eventually we got a kind of a green light from CSRC. At that moment, which actually was unbelievable was amazed we didn't get any paper on in law just as partially say we are okay with the structure you can go ahead.

ART:

While these discussions are being had it who can't you mentioned the bankers and lawyers and the accountants and auditors. Can I venture to guess that it was the bankers that first pushed the lawyers and accountants to come up with a different structure that would work and but then (shout out to fellow lawyers) that was the lawyers that came up with this kind of structure and just asked the auditors to sign off on it? Or what was the dynamic back and forth between those groups?

XIAOHU:

I think in China, you’ve been here long enough to understand this - bankers they won't be able to create create those structures, so it's really our lawyers. I think if you were in New York, or in California, in the Western world, if you call lawyers in sign off, and bankers will feel comfortable it is okay. And you got you got auditors like Arthur Anderson, now PwC, the auditor so the bankers will relaxed such an audit report, they won't be able to worry about this. 

But in China experienced the bankers they know if you want to do something which is breakthrough, you need to get endorsement from the Chinese government. Otherwise, you will take a high risk. And regardless what kind of risk factors you will have, you will have a problem. For example, as I mentioned, in my articles for the basic telecom industry, there was China foreign structure for basic telecom. That's basically the build up of China Unicom which actually one of the leading China telecom companies, Unicom was set up with a few licenses issued but they didn't have any assets. They didn't have any money. 

They didn't have any funding which acts as a captain incentive industry. So how they will be able to build up anetwork compete with China Telecom, which converting into China Mobile later stage, but trying to control all of the resources and the funding onshore in China. So it has to rely on foreign funding and as I said foreign funding in China for telecom was not a lot. So the had to have a contract with a WFOE because China incorporated company and a foreigner and why is foreigners the offer investor, so that goes through this structure have gone on and the fundings for their operations in China, although license entirely is unique.  

And that's how works for many years and a lot of people attending the signing ceremony, senior officials, including Vice Premier in China. But eventually, while Unicom contemplate the Hong Kong IPO, this the council just told the world this structure is not acceptable fromChina regulatory perspective, because to be frankly, because this is, and also China, as I said, in the WTO actions, China insists now 49%. So basically, bankers, they will need to have to have more assurance.

ART:

I've been in China for 14 years now. So I know, there's a certain amount of ambiguity that's tolerated here, which in doing things in structures and so forth, and regulations, which outs when other places like maybe the US is just not seen as much.  And that also means if you didn't knowanything about big structures or China regulatory environment, you might just think,why do you have this elaborate kind of song and dance, why does it have to be so complicated? If the regulator's as you said CSRC and others an MIIT they know that this structure is out there and this is goes till today 20 years later, they know the structure is out there. Why don't they just change the rules? Is it because you still have the founders as majority shareholder?

XIAOHU:

I think I think are your touch on the points as I mentioned the CSRC actually, this was not the first company in China internet company using this model to be listed on NASDAQ, as I mentioned in my article at that, at that moment, Sina.com was the leading China internet company much bigger than that is so in terms of remedies. And Sina.com has been stuck at MIIT for a long time. Because they didn't have a structure to put this together. And they hired us as their counsel and get PRC legal opinions but our guys said this is not just legal. And PRC lawyer just simply give them a legal opinion saying ICP company owned by a group of Chinese is nothing to do with the offerer. I think that's correct. And that's why they won't be able to put this together. 

But they are the leading company. So they stuck there for months. And suddenly they heard of course is confidential but they quit heard from the various sources not least I got a blessingfrom CSRC. That's really amazing for them. So basically, latest, that's my understanding. They push I actively involved, saying hey, I'm the regulatory authority. This is not something CSRC can make decision by itself. 

And so I'm I thought all of our structure our explanation, and they require us to give them lots of legal opinions. That's why Mr. Liu was very busy at the moment trying to understand what we are trying to do, I think because we were, we were in value added telcom area, which is relatively less sensitive. And also, I think leaders need a group of real soft, sophisticated are experienced bureaucrats because they know without any, meaning, they won't be able to get China, this value added Telecom, or even the basic telecom to be developed without foreign funding. 

You have the yellow cat, but if you catch the mouse here, that’s a good cat. So that's how Chinese government officials at that moment for foreign investment interest, believe if you could, making people achieve the goal, and also to not lose the control. And also, there are some legal explanation which can save grant their career. Okay, so actually just lucky, and also the big mind. 

So Sina hired a Commerce & Finance, they've got all of our documents. And, of course, they also talked with me more often, but we couldn't do it due to business conflict and other reasons. Sothat's why Sina was the first company. You mentioned why Chinese government given challenges because they already know, we go CSRC now and also, we also need the good bureaucrats which actually be very helpful. 

You also mentioned there are some other areas why there was some problems, I think you're right, because you're trying to regulatory environment is complicated, you have to be nice, you haveto understand it, if you expanding this structure, which is not endorsed by the applicable regulatory authority. For example, how do you payment if you go to the banking sector, which PBOC unpair which actually is much, much more sensitive for foreign investment. If you go to education, which actually much more sensitive to foreigners.

ART:

It's interesting. Some, some regulators are more tolerant than others, MIIT is relatively, like you saidthey recognized early, maybe not them, but their predecessors as well recognize that this funding was needed to develop the industry and internet companies in businesses. But when you get into banking is more sensitive, because that's more direct government involvement in that industry. And education of course also deals with content as videos you have SARFT and other agencies, the State Administration of Film and Television, which is these are much more notoriously difficult agencies to deal with. And they're not going to tolerate it. So it all depends who your regulatory agency is, but I could totally I'm sure you could tell lots of stories about how this modelstarted to expand. It was so tempting for investors and founders to say, oh, it works for Internet companies. Why can't we do it in banking and education and everything else? But did they try to do it and just the regulator's didn't step in quick enough or how did that how did it start to expand to other industries before resistance?

XIAOHU:

Yes, this alternate by the practiceare why you have the businesses such as regulatory sector, you need to talkwith the regulatory authority in such an industry and trying to get a plus. If you go to those sensitive areas such as banking and Ali pay payment card payment. Outside even CSRC, if you're talking about online brokerage, if it's audio video related service, you will get much resistance from the regulators, they say, wait a moment, if I allow you to do our, you know, barriers forforeign investment will not exist. 

And so that's why it will not work forthe telecom industry. So our guys, you know, if you were real US companies suchas Google, or Yahoo, they want to build up an internet and this structure cometo China, and I will tell them now. Yeah, they will have to consider the joint venture model. So I think there's unwritten rules, you have to have Chinese, Chinese, this is not a nationality. Really. There's not a legal concept. This means if a regulator feels comfortable, if they want to have something to ask you to obey their honor, you will follow, they will need a Chinese people speak Mandarin, with similar backgrounds, where they talk about you will be able to understand you won't be able to say, I want to get my lawyer….

ART:

So many of these unwritten rules have been developed over time. But the key thing to understand I think you'rehitting on is the Chinese government will tolerate these structures for the development of different industries, but they need to maintain a certain control. And it's not like control that they exercise or even likely to exercise. But it's just the potential for to have those conversations, like yousaid, and and of course, in the background, there's always the issue that these structures, VIE structures are a little tenuous, right and as better than anybody. When these companies do go IPO in the risk factors, they have to say, this structure is such still even after 20 years is subject to challenge or potentially. And so that's a risk factor. Of course, the people investing into the IPO just read right past that or don't read that section at all. But it's a hypothetical risk. And for the regulator's, that's good enough, like you said, as long as the founders are Chinese, and they still have some maybe it's not strict legal control, but it's practical control and language and disable tojust have those discussions, like you said, exactly, I think I think that's how you will read this, from a Chinese perspective, read the Chinese regulatory risk. 

XIAOHU:

Also, people may say, if they weresuch a high risk, why people do this, with substantial amount of money here andalso why those huge this giant company like Alibaba and Tencent still work under this structure. I think that's really the vote of confidence of Chinese government’s open door policy. 

ART:

They are always talking about that theVIE is on its last legs. Nobody can believe that it's lasted this long,probably was first regulators that you talk to approve the structure. I'm sure they recognize that other companies like SINA and doubt and others down the road would copy this structure. I'm sure they realize that they were opening the floodgates a little bit, but I'm sure none of them thought that 20 years from now, we'd still be using this structure for listing internet companies outside of China. Yeah, I wonder if they had known that if they had known that, in retrospect, do you think they still would have gone with this structure, do you think they would have would have done something else?

XIAOHU:

There was no other model available toget investors to be able to accept this model and also aren't and that'sanother kind of too big to fall into is that the money and the interest stuck into this model. In particular, with the success of China internet companies lose funding in the US into China at the very beginning for internet, just a few billion US dollars, which was not substantial compared with the current market at that moment back earlier to sound as a serious, quite substantial amount of money and also the return those investors made was substantial. And then if you go back and see the development has caused, so successful of the industry and the value of the money stuck into the sector, this is true, too big to fall and nobody there and be able to challenge this model. If they were no meaningful solution, yeah, in other words, the compensation and the others.

So, and also, you have to recognize those investors, they are not only foreign, real US investors, so you're in South Africa investors like Tencent, but actually substantial of those investors. They are real Chinese investors, even including those new fusion people in Beijing. So basically, people dare to challenge may not be able to end up very well. topic. Yeah, a lot of a lot of skin in the game at thatpoint. 

ART:

But it's interesting, because you have the Alipay example, you mentioned is quite a controversial one. And the story has been told many times before, but people don't necessarily know it's because of the VIP, right people would never make that link. But as the audience, some people may know, that Ali pay case where jack ma took the operating company and put it under a new structure, not necessarily disclosing everything to his major investors, Yahoo and SoftBank time and Ali pay, of course, back then was smaller than it is today. But we still people saw the potential of it. 

And the excuse that Jack Ma gave was released. The explanation, let's call it that was that that the bankingregulators, as you said, were giving him hints that they would no longer be happy with this open secret VIP structure of having a still having kind of foreign ownership for something doing these kind of financial tractions. We can debate all day, whether is Jack Ma’s explanation was completely honest, and full disclosure about all of that and whether there was other options and whether Yahoo and SoftBank were really made whole for that taking the business out of the Alibaba structure. 

But is it fair to say that people still use that case as an example? In your experience Yahoo, the use case as anexample, as a slight warning to the risks of use is still using a VIE structure?

XIAOHU:

Of course, I think that's the regulatory risk, as I mentioned at the very beginning, basically yeah, forthose companies that are established for ICP concept, not worse as a side note, simply because all the worse is because we bought us some blessing from the Chinese government, although is the Holland blessing from the applicable regulatory authority, such as CSRC. 

And to be frank, those blessing is not really rules of law kind of blessing, which you could imagine because to all those officials who approved the structure retired it's actually it's a new group of people in power, and the sad is maybe too big to for all the other consideration still maintains such a structure in place but for Ali pay, which is in the online payment magazine, which actually, I think at the very beginning they put into place with VIE structure, this may not be a problem because there was no such license requirements for non payment in China while they first appeared that they put into the sector. 

So Jack Ma will need to make a choice and whether he will still be the leader of the market with the license or he is totally excluded from the market or he doesn't have a fresh new company to apply for the license. So he made his own choice. I don't want to comment, not from a legal perspective but he has to make a choice and the people will need to understand it is a it is an issue for him no license to get the license. 

And you will not be able to blame people while they started from scratch. 

While there was no such a rigid requirement, and you went to there's a regulatory requirement, so how are you able to fulfill it? And how, and eventually I think eventually is a is how to you will be able to treat the board and how you will be able to honor your contract your obligation and the contracts? Because we are not the people really involved into the details. I think it's fair for us to comment. And also, in general, I think PBOC as a regulator, you won't be able to expect they will be tolerance for the structure as a general matter, I think Jack Ma made the right decision in terms of the license application, but whether he did the right thing in terms of how to deal with the contract. Yes, sign or the other. That's another issue. 

ART:

Yeah, I totally agree with that, that assessment as well, of course, he's much better than me. At the time,people forget that Yahoo and SoftBank, they were such large shareholders of Alibaba. I don't know if they had 50%. But combined, they had a lot. And so it's almost getting into those cases, you just you described before, where Google wants to set something up, or it was such heavy foreign ownership, that it was not just a simple structure, where you had a few venture capital investors in foreign venture capital investors in and I've for sure that, again, like you said, PBOC is not the same as MIIT and regulating value-added telecoms.

I just think that, maybe, and yet, it wasalso, as I remember, it was much more of what I read afterwards, that the, there was no license. And actually, what Ali pay was doing was was soinnovative, that I don't think the regulator's wanted to step in and put down a lot of regulatory requirements in the beginning because they didn't know how to regulate it. And also, he was breaking up some of the monopolistic behavior of the existing system in a good way and creating innovations. So for all those reasons, a, I think they probably did look the other way until they realized, wow, this thing is getting really big. 

XIAOHU:

Exactly. How do you pay just fromChina perspective, they invented this kind of online, which actually is a mobile payment mechanism, there was a poll pay in the US. But what Alipay hasdone is far more than actually, they build up this online and eventually converted into this mobile payment nexus, it's amazing, it's a totally new, it's actually something, you're really the business people build it up as a practical matter, and then recorder for camera, catch up and say, hey, I needto regulate this.

I need to I need to give you a license, you cannot operate business without a lesson. But they just feel isnot acceptable from a regulatory perspective rebates allow the foreign company to run this business. And let me finish up with a question about what you think is the future of the DA because as we mentioned, it's just recently last year hit its 20th anniversary. And again, nobody thought it would last this long. 

ART:

The other thing that's in the that'sgoing on these days, more and more is the local capital markets in China are much stronger than they were 20 years ago, where these companies really had to go outside of China to get funding, especially when they're not yet profitable. And now that there's the stock market here in China, and there's more flexibility as that what early stage companies being able to list locally, do you see the VIP still having the same viability and having a long life ahead ofit? Or do you think that it's eventually going to be wound down and either because company is going to be listing locally or the structure will have just outlived its usefulness? Or what do you see in store for the future the VIE.

Yeah, I think to eventually still going to be determined by the market in China, everything is trying to buy the market rather than present by the regulators. And as you said, if you could get enough local investment, and you company will then be a totally locally owned company and be eligible for A share listing. And then an Asia listing will be improved and be used, much more user friendly than it used to be. That's going to be very attractive for people just do not adopt the other structure, and whichactually be more difficult to have a local education market. And so actually, it's happened this happened during the past 10 years. 

A lot of companies getting rid oftheir NASDAQ listing and use this mechanism trying to come back to China and do local listing at A share market. And also us has been put into a lot of calm, friendly policy and regulatory regulators on China related companies actually push back those Chinese companies. Lastly, they want to listen in Hong Kong, maybe they will still consider to be listed in China. So this is going to be an attack as you said, there is not cash available, winter capital key masters available in that general market.

So there they're going to be more and more kind of pure China company. Without this infrastructure. However, China maintains as a part of the global economy, player. And, and then as I said, there, there are still a substantial amount of those investments available for this offshore structure. So it's no easy just trying to simply get rid of this factor immediately or just with magic, just say they permit me rules and make this doesn't work, I think the structure will still be there for a while is notgoing to be unique is not going to be that the audio, so there are going to be different ways and including the local ways. 

And then if China is going to pushmore about national treatment for foreign investment, so there are maybe in thefuture, they were losing the license requirement for violated eah, they will, they will be more user friendly in terms of regulatory environment. So there may not be a need for foreign investment or to do business in China goes for such a complex structure. So all those things, well, why people could do a simple and they won't do the complicated. Well, so that's going to take a while I will say it's not going to happen overnight. And I think if you ask my judgment is going to be there for a while. Although the market is developing, really driven by the regulatory environment, and driven by how the China economy and how the train regulator goes.

ART:

And that makes total sense. It's driven by the market. And we always as lawyers, can find structures that can help fill market demand. And this we promise this episode is technical in the sense that we're talking about accounting and legal structures, but it's anything but boring is far if you think about the funding the capital, it opened up for Internet companies to grow spectacularly here in China and the fuel for what now is the biggest e commerce market in the world and amazing internet companies that people have heard around the world. 

Xiaohu, I don't think there's anyone else we could have had on the show to talk about this in such depth. And havingbeen there from the beginning of when this was all starting out. There's no oneelse we could have invited you to come on and talk about this. So I really appreciate and I know our audience will appreciate as well all of the wisdom you've shared with us today. 

XIAOHU:

First, thank you for your attention.We're happy to share my experience in China actually is just like me as amazingfor me as a Chinese lawyer for working for us firms serving for thoseinternational China based companies. That's all amazing. 

ART:

Excellent. Okay. Thanks for sharing everything.It has been a great conversation. 

XIAOHU: 

It's a pleasure to talk with you. 

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