Deconstructing the myth of Alipay Drama—Repoliticizing foreign investment in the telecommunications sector in China

Alibaba’s dispute with Yahoo and Softbank over Alipay’s ownership in 2011 again brought China’s telecoms law and foreign investment policies into the spotlight. Although China has officially opened up its telecoms services sector to foreign investors according to its WTO Agreement, foreign investors are still experiencing various difficulties when they enter the Chinese market. Recent years have witnessed some new regulatory movements tackling the variable interest entity structure (or the VIE structure) adopted by foreign investors in investing into China’s telecoms industry. This article reviews the VIE structure and Chinese regulatory counter measures, and offers a political economy insight to Chinese telecoms policy changes. In addition, the article attempts to review the struggles between regulators and regulatees in the business community through the lens of economic regulatory/development model with Chinese characteristics.

► The article tackles struggles between regulators and regulatees in China’s telecoms sector.
► Alipay dispute is analysed in the context of VIE structure.
► Policy implications are analysed concerning the tightened regulatory space.