What's a VIE? The structure uses two entities. The first is a shell company based somewhere outside China, usually the Cayman Islands. The second is a Chinese company that holds the licenses needed to do business in the country. The two entities are connected via a series of contracts. When foreign investors buy shares in a company that uses a VIE, they're purchasing stock in the foreign shell company — not the business in China.
For example, when US investors buy shares in Chinese ride-hailing firm Didi, which went public in June on the New York Stock Exchange, what they're actually doing is buying stock in a Cayman Islands company called Didi Global.