Yahoo Inc. and Japan’s Softbank Corp. (9984), eager for a slice of profits in China’s Internet industry, found that even a seemingly safe way around restrictions can turn risky and threaten the value of their stake in the country’s biggest e-commerce provider.

Yahoo and Softbank have been bypassing the restrictions by contracting with Chinese partners to provide technical services in exchange for a share of revenue.

The tactic worked until e-commerce provider Alibaba Group Holding Ltd.’s online payment service, Alipay, applied for an operating license under China’s new rules for payment service providers. Regulators balked and asked Alipay to prove it had no contractual ties to foreign investors, according to domestic media including the People’s Daily and the Nanfang Daily.

That Chinese officials hadn’t challenged the investments earlier is characteristic of a regulatory environment fraught with inconsistent enforcement, broadly worded rules and a lack of transparency, said lawyers including Tom Shoesmith, head of law firm Pillsbury Winthrop Shaw Pittman LLP’s China practice.

“Western businesses come into China and they want to know what the rules are,” Shoesmith said. “There’s the technically correct answer, there’s the practical answer, and then the third one is, ‘Who cares anyway?’ Sometimes the answer is ‘Who cares anyway?’ until you get busted.”

Jack Ma

As Alibaba founder Jack Ma haggles with the shareholders, including Sunnyvale, California-based Yahoo, over compensation for the soured investment, the share price of Alibaba.com Ltd. (1688), Alibaba’s publicly traded unit, remains at a two-year low. Yahoo has tumbled to its lowest in eight months.

Yahoo spokeswoman Dana Lengkeek declined to comment on whether the regulator had asked Alipay to cut off its ties with foreign investors. Softbank spokesman Takeaki Nukii declined to comment on its use of the investment structures in China.