China is creating a blacklist that is anticipated to restrict the main channel used by start-ups to attract foreign capital via VIEs, according to a report by Reuters on Wednesday.

  • The blacklist will focus on new companies in sensitive industries that use variable interest entities (VIEs) to operate their China businesses. The changes are not expected to apply to the existing companies.
  • VIEs are a legal framework that has been utilized for many years by Chinese tech groups, including Alibaba and Tencent, to beat foreign investment restrictions and raise international capital.
  • The list comes after a tech sector clampdown over the past year that culminated in an official announcement last week by ride-hailing group Didi that it would delist from NYSE.

Chinese authorities have argued that the nation’s larger consumer internet groups are always focused on eliminating competition rather than helping the country catch up with the US.