Based on an analysis of the relevant Chinese laws and regulations governing the corporate governance structure of venture capital (“VC”)-invested firms, as well as a discussion on the feasibility of employing different alternatives to make direct and indirect VC investments in Chinese portfolio firms, this article studies a hand-collected sample consisting of the twenty-nine VCbacked Chinese portfolio firms that have been financed and listed from 1990 to 2005 in order to empirically show how these investments were actually made in practice. The findings show that twenty-three out of the twentynine firms received their VC investments in various offshore holding entities, while only four firms were financed domestically, reflecting the common practice of using offshore investment structures to invest in Chinese firms. Although using such structures can be technically viewed as relocating VCfinanced Chinese firms abroad, doing so is different from strategic corporate relocations motivated by the need to access more efficient legal and economic conditions. Instead of being relocated to the United States, most firms actually move to foreign tax havens, such as the Cayman Islands or the British Virgin Islands. It can be argued that the corporate relocation phenomenon in China’s financings actually reflects more of a contracting technique to circumvent unfavorable Chinese laws and more conveniently implement United States-style contracts. In this sense, and within the particular setting of China, real strategic corporate relocation in VC finance is not really yet an issue.
Jing Li, Venture Capital Investments in China: The Use of Offshore Financing Structures and Corporate Relocations, 1 MICH. J. PRIVATE EQUITY & VENTURE CAPITAL L. 1 (2012).