Hong Kong
CNN
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China is set to make market-oriented changes to the way IPOs are approved as it seeks to restart the economy and restore investor confidence after a chaotic zero-Covid exit.
Once implemented, the reforms will be the culmination of a decade-long attempt by the country 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, based on the model in the United States, will apply to all domestic exchanges, including key ones in Shanghai and Shenzhen, according to an announcement by the China Securities Regulatory Commission (CSRC) on Wednesday.
The regulator is asking for public feedback on the proposal by February 16. He is not expected to arouse much resistance.
Under the new system, regulators will stop scrutinizing companies’ proposed stock sales. Instead, exchanges will take the lead. The new system aims 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. In 2019, a pilot project was carried out in the technology-oriented STAR market in Shanghai. It was later acquired by the Shenzhen-based ChiNext startup board, and then the Beijing Stock Exchange.
Currently, listings on the main stock exchanges of the Shanghai and Shenzhen stock exchanges must be reviewed and approved by regulators before they can be launched.
“The essence of this reform is to let the market decide,” the CSRC said.
It will not impose administrative restrictions on the pricing and scope of new share sales, which should greatly improve the “efficiency” and “transparency” of listing reviews, it said.
“This is an important step towards reforming the capital market. The government will allow the market [forces] to play a larger role in resource allocation,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
“This is a step in the right direction,” he said, adding that it was “encouraging” to finally see change after years of talks.
China’s economy has slowed to one of its worst growth rates in nearly half a century. Financial stress has mounted even as the economy has started to recover after three years of tight pandemic controls.
After a messy exit from its zero-Covid policy, Beijing is trying to restart the economy and restore investor and business confidence. Chinese leader Xi Jinping on Tuesday reiterated his plans to revive domestic consumption, stimulate private investment in emerging industries and achieve long-term technological independence.
The timing of the CSRC announcement was “ahead of market expectations,” according to Citi analysts.
The faster-than-expected progress was mainly due to the “urgent need” to help companies raise money outside of bank lending channels. Many banks are deteriorating in their balance sheets due to bad debts piling up from struggling local government and developer financing platforms, they said.
Meanwhile, buoyant market sentiment in China following the policy focus on zero-Covid and the real estate sector has led to a major stock rally, making capital market financing a viable tool in the eyes of regulators, they said.
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