Abstract: The “Variable Interest Entity” (VIE), derived from the “Red Chip Model”, realizes the consolidation of financial statements by controlling the operating entity through agreement, which is currently the main framework adopted by domestic educational institutions to list abroad in China. In this way, some overseas listed educational institutions have bypassed domestic legal supervision in order to raise the stock price, relying on asset mergers and acquisitions and factor restructuring to rapidly expand the scale of schools, controlling a large number of non-profit non-governmental schools directly or in disguise, resulting in “unilateralism” in school governance. Meanwhile, many actual controllers of such institutions use various “related transactions” to master school operating costs as well as the school balances, and obtain “grey returns” from them, resulting in reduced teaching input and declining quality of education. With the continuous improvement of laws and regulations, the government will strictly regulate and supervise the changes of organizers (actual controllers), mergers and acquisitions of school assets and related transactions. Educational listed enterprises rely on the unconventional operation of VIE framework, therefore can only be short-term prosperity and unsustainable. Existing overseas listed educational enterprises and many entity schools directly or indirectly controlled by them should return to the right path as soon as possible. In addition, they should adhere to the public welfare nature of education, as well as running schools in accordance with the law, regulation and integrity.

Key words: non-governmental school, capital market, asset merger and acquisition, related party transaction, administrative supervision