China’s securities chief: we aren’t clamping down on IPOs

10 Jun, 2021 23:39
source: Singularity Financial

Singularity Financial Hong Kong June 10, 2021 – China’s IPO requirements haven’t gotten any tighter, or looser for that matter, the head of the country’s securities watchdog said Thursday, stating that it is the market that chiefly sets the pace of IPOs.

The number of new listings is determined by what investors can afford and the amount of liquidity in the market, Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), said at the 13th Lujiazui Forum.

A total of 196 companies completed their IPO on Chinese mainland stock markets in the first five months of 2021, a year-on-year increase of 111%, Yi said. They raised more than 150 billion yuan ($23.5 billion), up 37% year-on-year.

The country’s securities regulator recently announced draft rules that aim to standardize and increase transparency for the entities that guide—and often underwrite—companies seeking initial public offerings in China.

China’s IPO process involves a so-called sponsorship system, in which entities, much like underwriters, assess the risks, competitive advantages, profitability, and business plans of firms hoping to list on one of the country’s two stock exchanges.

After a firm is accepted by a sponsor, it is examined, coached, and possibly even restructured with a sponsor’s advice, though the final decision of whether it may go public still rests with the securities regulator, the China Securities Regulatory Commission (CSRC).

China also has adopted a U.S-style, registration-based IPO system on Shanghai’s Nasdaq-style STAR Market, and Shenzhen’s start-up board ChiNext, in a bold reform designed to give market a bigger role in evaluating IPO candidates.

But since December, stock exchanges have stepped up IPO inspections, leading to a growing number of companies cancelling their IPO plans.

It is unclear how many companies are refused by approved sponsors, or withdraw their applications before completion, but one statistic makes it curious why regulators seem keen to reform the industry: Nearly all firms that eventually file to go public are approved by the CSRC. In 2019, 90% were given a green light, according to Chinese government data.

Yi told a forum that recent China stock market volatility is “natural”, and risks “controllable”, but cautioned against “harmful” foreign hot money flows.