Global Market: Xiaohongshu faces scrutiny over potential Hong Kong IPO plans amid VIE structure dispute

China’s Xiaohongshu, the social media platform often compared with Instagram and known internationally as RedNote, is facing increased scrutiny over its potential Hong Kong listing plans after a former employee raised concerns about the company’s corporate structure, according to Reuters.

The platform has reportedly hired advisers for a possible Hong Kong initial public offering, although the company has denied reports that it had confidentially filed for a listing in late June. The dispute centres on Xiaohongshu’s use of a variable interest entity (VIE) structure, a model commonly adopted by Chinese technology companies seeking access to overseas capital markets.

Under a VIE arrangement, foreign investors typically hold stakes in an offshore entity that controls a mainland Chinese operating company through contractual agreements rather than direct ownership. The structure has allowed several Chinese technology giants, including Alibaba, JD.com and NetEase, to list outside mainland China despite restrictions on foreign investment in certain sectors.


The complaint was filed by former Xiaohongshu advertising sales executive Chen Hao, who approached Hong Kong’s stock exchange in June and later raised the issue through a social media post. Reuters reported that Chen alleged inconsistencies in how Xiaohongshu describes the relationship between its domestic and offshore entities.

The dispute emerged after Xiaohongshu terminated Chen’s employment. He claimed the company argued that its mainland and offshore entities were separate, meaning the domestic business was not responsible for share options granted to him by the offshore entity.

Chen argued that this position appeared difficult to align with disclosures normally made by companies using VIE structures during listing processes. Offshore holding companies using such arrangements are generally expected to demonstrate contractual control over their mainland operations.

Xiaohongshu told Reuters that reports suggesting it had confidentially filed for a Hong Kong IPO were inaccurate. The company also rejected reports that its listing process had been disrupted by a former employee complaint. It did not provide details on whether it had future listing plans.

The Hong Kong Stock Exchange declined to comment, while the city’s Securities and Futures Commission did not respond to requests for comment. Chen also declined to provide further comments beyond his social media post.

VIE Structure Under Growing Pressure
The controversy highlights long-running questions surrounding the VIE framework, which has occupied a grey area between Chinese regulatory requirements and foreign investor expectations.

Legal experts said the structure attempts to satisfy Chinese authorities by maintaining domestic control over strategically important businesses while also allowing international investors to gain exposure through offshore entities.

Robin Huang, a law professor at the Chinese University of Hong Kong and author of a book on cross-border listing regulations, told Reuters that the ambiguity surrounding VIE structures has been central to their use, as they attempt to balance two competing objectives.

Chinese regulators have become increasingly cautious about offshore listing structures involving red chip companies, as Beijing seeks to maintain control over important technology businesses while managing foreign investment access.

The Hong Kong market has historically accepted VIE-based listings after companies provided legal opinions confirming compliance with Chinese regulations. However, analysts said the Xiaohongshu dispute could increase scrutiny of how such structures are assessed in future listings.

So far this year, only one company using a VIE structure has completed a Hong Kong listing, Hangzhou-based Manycore Tech, an artificial intelligence-powered cloud-based 3D design company, Reuters reported.

The increased regulatory focus could create additional challenges for Chinese technology firms seeking overseas listings and may further influence foreign investors’ access to China’s fast-growing digital economy.

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