China is set to make market-oriented changes to the way initial public offerings (IPOs) are approved as it tries to reset the economy and rebuild investor confidence after a chaotic exit from zero Covid policy.
Once implemented, the reforms will mark the culmination of the country’s decade-long attempt to liberalize its nearly $12 trillion stock market, which could make it easier for companies to raise money from domestic investors.
The new registration-based IPO system, modeled on the United States, will apply to all domestic stock exchanges, including major ones in Shanghai and Shenzhen, according to an announcement by the Securities Regulatory Commission of China (CSRC) in Wednesday (1st).
The regulator is requesting public feedback on the proposal by February 16. She is not expected to receive much opposition.
Under the new system, regulators will no longer veto companies’ planned share sales. Instead, stock exchanges will take center stage. The new system is expected to streamline the review process and give companies and investors more control over the pricing and timing of IPOs.
The concept was first proposed by the government in 2013. A pilot scheme was carried out in the technology-focused STAR market in Shanghai in 2019. It was later adopted by ChiNext’s start-up board in Shenzhen and then by the Exchange of Beijing Securities.
Currently, listings on the main boards of the Shanghai and Shenzhen stock exchanges must be reviewed and approved by regulators before being launched.
“The essence of this reform is to let the market decide,” said the CSRC.
No administrative restrictions will be placed on the price and scale of new share sales, which should significantly improve the “efficiency” and “transparency” of listing reviews, it said.
“This is an important step towards reforming the capital market. The government will allow market forces to play a greater role in resource allocation,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
“It’s a step in the right direction,” he said, adding that it was “encouraging” to see changes finally happening after years of negotiations.
economic reset
China’s economy has slowed to one of its worst growth rates in nearly half a century. Financial stress mounted even as the economy began to recover after three years of tight pandemic controls.
After a chaotic exit from its Covid-zero policy, Beijing is trying to reset the economy and rebuild investor and business confidence. Chinese leader Xi Jinping reaffirmed his plans on Tuesday to revive domestic consumption, encourage private investment in emerging industries and achieve long-term technological independence.
The timing of the CSRC announcement was “above market expectations,” according to Citi analysts.
The faster-than-expected progress was mainly driven by a “pressing need” to help companies raise cash outside of bank lending channels. Many banks are seeing their balance sheets deteriorate due to the accumulation of bad debts from local government finance platforms and real estate developers, they said.
Meanwhile, buoyant market sentiment in China following policy pivots on Covid-0 and the real estate sector led to a big rally in equities, making capital market financing a viable tool in the eyes of regulators, they said.
Source: CNN Brasil
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