An investor in Shanghai checks stock index price movements on a mobile phone. [PHOTO by WANG GANG/FOR CHINA DAILY]
The capital market will be able to better serve the real economy with the full implementation of the registration-based IPO mechanism across the A-share market, which will help increase direct financing and encourage technological innovation, analysts said.
The China Securities Regulatory Commission, the country’s top securities regulator, released 165 detailed measures to introduce the registration-based stock issuance system in the A-share market on Friday.
The measures tighten listing requirements, remove administrative restrictions on the price and size of IPOs, and streamline company underwriting and sponsorship rules.
The market reacted positively. On Monday, the benchmark Shanghai Composite Index closed 2.06 percent higher at 3,290.34 points, while the Shenzhen Component Index gained 2.03 percent to close at 11,954.13 points. A-share securities firms reported the largest daily gains, averaging 4.02 percent.
Analysts at Huatai Securities said the mechanism directly benefits the A-share non-bank financial sector as well as financial information technology solution providers.
The mechanism, which gives the market a crucial role in IPOs, was first trialled on the STAR Market in Shanghai in 2019, on the ChiNext in Shenzhen in 2020 and on the Beijing Stock Exchange in 2021.
The experiences of the three directors indicated that the A-share market is likely to show bullish performance this year and next amid plentiful capital inflows, analysts at Zhongtai Securities said.
Hu Xiang, chief non-banking financial analyst at Soochow Securities, said the mechanism could help increase direct financing ratios in China’s capital market.
According to Soochow Securities, direct financing, including equity and bond issuance, accounted for just 35 percent of total financing value in 2022 in China, while the ratio was 83 percent in the United States.
Further reforms in China’s capital market, such as a streamlined delisting mechanism, remain crucial to facilitating the maturity of the A-share market by smoothing out the listing process for industry leaders and excluding the less competitive more quickly.
As a result, the financial sector can better serve the real economy, Hu said.
Chen Li, chief economist at Chuancai Securities, said the multi-layered structure of China’s capital market will be further consolidated with the registration-based IPO mechanism.
The main board will primarily serve the IPOs of large-cap blue chip companies. Shanghai’s STAR Market will focus on “hard technologies” such as chip manufacturing and biomedicine, while Shenzhen’s ChiNext will target modernized traditional industries that integrate new technologies and business models.
Under previous IPO rules, intangible assets had to account for less than 20 percent of the applicant’s net worth. The new measures have removed that limit, which has been seen as a major obstacle for tech companies to go public, said Ye Xiaojie, an associate professor at the Shanghai National Accounting Institute.
Technology companies typically own a significant amount of intangible assets such as patents. The lifting of the cap is a logical step given the rapid development of tech companies in China in recent years, he said.
With the implementation of the registration-based IPO mechanism, more capital will be channeled into high-tech companies, facilitating industrial upgrading and transformation. It also boosts China’s high-quality economic growth, said Dong Dengxin, director of the Finance and Securities Institute of Wuhan University of Science and Technology.
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