China deepens capital market reform with expansion of registration-based IPO

BEIJING -- With the registration-based initial public offerings (IPOs) system to be further expanded, China has cranked up reform in its capital market system amid efforts to promote high-quality economic development.

The registration-based reform will be deemed the bellwether of the broader capital market revamp, and is bound to bring about major institutional improvements in the sector, said Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), at the just-concluded Annual Conference of Financial Street Forum 2020.

The country will gradually roll out the new IPO system in all parts of its capital market as conditions have gradually matured after a pilot program, the commission announced in a sub-forum of the conference lasting from Oct 21 to 23.

China has stepped up IPO reform since 2019, implementing the new IPO system on the Shanghai Stock Exchange's sci-tech innovation board, or the STAR market, and the Shenzhen Stock Exchange's ChiNext board.

"The ongoing reform can be described as meeting expectations with stable performance," said Li Chao, vice-chairman of the CSRC, adding that it has so far achieved remarkable results and won recognition from the market.

The STAR market, for instance, has seen a more efficient approval and registration process, with the average time between IPO application and registration shortened to about five months.

Major institutional innovations on the sci-tech board have also withstood market tests, as evidenced by more rational new stock pricing, higher pricing efficiency and a more vibrant secondary market.

Building on the experience of the pilot program, the commission will steadily advance a market-wide IPO reform, with measures to improve the information disclosure system, issuance and underwriting mechanisms as well as delisting channels.

Another focus of institutional improvements is to foster a multi-level capital market covering main boards, the STAR market and the ChiNext board, among others, so as to give full play to direct financing in bolstering the real economy.

As of Oct 15, direct financing totaled 3.86 trillion yuan (about $578.7 billion), up 37.13 percent year-on-year, data from the financial information provider Eastmoney.com showed. China's exploration of the multi-level capital market has been "successful," said Andrew Sheng, a distinguished fellow at the Asia Global Institute.

Looking ahead, Yi pledged more efforts to improve the diversified supervision system of private equities, promote interconnectivity of bond markets, and expand the pilot program of real estate investment trusts.

Apart from the task of assisting all kinds of companies with their funding demand through the multi-level capital market, the country's securities regulator has also been on the lookout for market risks, rolling out measures to strengthen regulation and risk control.

Earlier this month, a guideline was issued to improve the quality of listed companies, detailing 17 measures such as better corporate governance, perfecting the exit mechanism and raising penalties for illegal acts.

Shedding light on relations between regulation and market, Yi said China will establish an open and transparent capital market system, keep its hands off "matters that are not subject to regulation" and foster a healthy market ecosystem.

An improved fundamental system can boost the competitiveness of the capital market, thus injecting impetus into the high-quality development of the real economy, said Li Zhan, chief economist with Zhongshan Securities.

China will move further in building a more mature and stable capital market system, better serving the real economy and protecting the legitimate rights and interests of investors, Yi said.