The Biggest Danger Investing in China's Tech Stocks

Investors have long been leery of the potential for foreign governments to introduce new regulations, seize assets, and otherwise interfere in the operations of a company. Examples that justify those concerns abound.

In mid-2016, China introduced laws to regulate internet advertising that had far-reaching effects on e-commerce, search, and social media companies. Earlier this year, the government of Venezuela seized a factory and other assets owned by General Motors, resulting in a one-time charge by the company of approximately $100 million.

Potentially one of the greatest underlying risks when investing in China, however, is a common but controversial corporate structure that gets little attention in the West. This complicated legal agreement is the variable interest entity (VIE), often referred to as the Sina model, after Chinese online media company SINA Corporation (NASDAQ: SINA), which was the first to use the structure, in 2000.

Source: Fool.com