Author: Lawyer Zhang Jingxinyue, PRC-qualified Lawyer | Singapore Registered Foreign Lawyer
Note: In the “casualty list” of Chinese enterprises going global, 80% lose not on products but on equity structure. When going global changes from making quick money to a long-term battle, equity structure is no longer merely a question of “who holds shares,” but determines whether the enterprise can:
- smoothly finance and list
- compliantly reinvest
- reduce global tax burden
Equity structure is the first chess piece in going global. Whether it is placed well determines how far the enterprise can go.
This article distills four golden principles of equity structure design and analyzes five practical architecture cases to help enterprises avoid the “deep-water zones” of cross-border expansion.
01 Four Golden Principles of Equity Structure Design
1. Strategy Alignment Principle
- Core business in China? Choose a domestic holding/offshore structure (e.g., Mixue Bingcheng);
- Target market overseas? Choose a purely offshore structure (e.g., AI company HeyGen);
- Need to mitigate geopolitical risk? Use a parallel structure (e.g., a company with Russian operations).
2. Tax Planning Principle
- Reduce tax burden through offshore companies (BVI/Cayman) or regional holding companies (Hong Kong/Singapore);
Case: BYD uses its Hong Kong subsidiary for global expansion, leveraging tax treaties to avoid double taxation.
3. Compliance-First Principle
- Chinese founders must complete Circular 37 registration to lawfully hold overseas equity;
- Sensitive industries (e.g., AI, data) must avoid foreign ownership restrictions (e.g., localized parallel structures).
4. Flexible Adjustment Principle
- Preserve room for future listing restructuring (e.g., H-share/A-share/red-chip structure conversion);
Case: Junshi Biosciences uses a “purely domestic structure + overseas licensing” asset-light approach to go global, retaining listing flexibility for A/H shares.
02 Five Practical Architecture Case Analyses
| Structure Type | Applicable Scenario | Typical Case | Key Takeaways |
|---|
| Domestic Holding of Offshore Entities | Domestically led enterprises | Mixue Bingcheng: domestic holding of Southeast Asian subsidiaries | ODI filing for capital outbound; overseas profits may be retained for reinvestment | Offshore Holding of Domestic Entities | Overseas financing/listing needs | SheIn: BVI → Singapore → domestic WFOE structure | Circular 37 registration enables founders to lawfully hold equity and repatriate returns | Parallel Structure | Mitigating geopolitical risk/foreign ownership restrictions | A software company: independent domestic and overseas dual-brand operations + technical support agreements | Contractual control replaces equity ties to avoid sanctions contagion | Purely Offshore Structure | Entirely overseas business / non-Chinese founders | HeyGen: deregistered its China entity to focus on overseas AI video business | Leveraging a Cayman company for tax savings and avoiding CFIUS review | Purely Onshore Structure | Asset-light going global (licensing/cooperation model) | Junshi Biosciences: domestic licensing to overseas pharmaceutical companies for toripalimab commercialization | No need to establish an overseas company, reducing compliance costs but relying on channel control
03 Hard Lessons: Three High-Risk Minefields
1. Capital Outbound Trap
- Failing to complete ODI filing causes overseas investment funds to get stuck (domestic holding structure);
- Failing to complete Circular 37 registration prevents founders’ overseas dividends from being repatriated (offshore holding structure).
2. Tax Audit Risk
- Related-party transaction pricing within the group does not conform to the “arm's length principle” (e.g., J&T Express cross-border business);
- Offshore companies being deemed as having “no substance” and facing back taxes (purely offshore structures must plan subsidiary functions).
3. Local Compliance Blind Spots
- In parallel structures, nominee shareholding is illegal in Indonesia, Thailand, and the Philippines;
- Foreign-restricted industries (e.g., Indonesian logistics) require contractual control (VIE) to break through (see J&T Express).
Conclusion
An outbound structure is by no means a “template” choice:
- Mixue Bingcheng uses domestic holding to take root in Southeast Asia;
- SheIn uses offshore holding to win global markets;
- Junshi Biosciences uses purely onshore structure to achieve asset-light technology going global.
There is no “best going-global equity structure,” only “the structure best suited to you.” But the core of all successful structures boils down to four words: “plan in advance.” Chinese enterprises planning to go global must customize their plans according to their own strategy, industry characteristics, and founder nationality, and engage legal/tax teams early for overall control, making equity structure a “booster” for entering overseas markets rather than a “stumbling block” that drags the company down.
In the global chess game, a move once made leaves no room for regret. Architecture design is the first step of your global expansion.
Note: The cases in this article are all derived from public corporate disclosures; structure design requires dynamic adjustment.
Further Reading:
- “Circular 37 Registration Practical Guide”
- “Negative List of Foreign Investment Access in Southeast Asia”
Extended Learning: Practical operations and case studies on equity-structure design will be covered in the “Foreign-Related Legal Practice Workshop (Singapore Session)” from October 26 to 31. The courses will be taught in depth by front-line cross-border practitioners combining cases and operational details.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.