(BFM Bourse) – New relaxed stock market regulations in China have breathed new life into IPOs in the country. Ten new Chinese companies made their IPO at the beginning of the week on the Shanghai and Shenzhen markets. And the first quotations were more than noticed.
Successful baptism of stock market fire for several Chinese companies. At the beginning of the week, a group of ten companies made a remarkable entry into the financial centers of Shanghai and Shenzhen with prices which jumped on average by almost 100%, reports the Financial Times.
Two companies particularly stood out during their first day of trading: Shenzhen CECport Technologies, an electronic components distributor, whose shares gained up to 239% in session or Dencare Chongqing Oral Care Co a manufacturer of oral products , which also soared more than 200% during Monday’s session. The other eight companies, including Shaanxi Energy Investment Co and Both Engineering Technology Co, saw increases ranging from 50% to 120%.
Why such excitement? China has overhauled its stock markets with much more relaxed rules, particularly in terms of IPOs. Since Monday, a registration system adopted in the majority of countries has come into force for all of the Shanghai and Shenzhen stock exchanges. A revolution for these two stock exchanges in the Middle Kingdom. And the entry of this group of ten companies under this new regime had the value of a life-size test.
Less regulation, more simplification
In China, the IPO process that prevailed for these two places was a system by approval. It was the regulator, the China Securities Regulatory Commission (CSRC), which then gave its approval to the IPO of a company that was knocking on the door. This mechanism was regularly singled out due to strict regulation and a long waiting list. For some, the process was an obstacle course as the time taken to review each file could take months or even years. This same body was also in charge of setting the price of IPOs, which itself was capped at 23 times earnings per share.
Moreover, this concentration of decision-making power has given rise to abuses. In 2018, Yao Bang, the former vice president of the CSRC was sentenced to 18 years in prison for corruption and insider trading. As for Liu Shiyu, the former president of this same regulator, would have denounced for acts of “corruption”, including insider trading and IPO facilitated for certain companies from his native province.
In addition to abolishing the IPO by approval system, the new rules also drop the daily limit on price changes during the first five trading days following a new entry into the financial markets. Under the new trading rule, the 10% daily fluctuation imposed on share price movements during the first five trading days has been removed. This limit will come into force only from the sixth day.
The reform also enshrines better dissemination of information. Companies applying for an IPO will have to disclose a certain amount of information about them. “The changes brought about by the IPO reform are comprehensive and fundamental, centering on information disclosure,” said Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), state media reports. CCTV Monday.
First unveiled on February 1 by the China Securities Regulatory Commission (CSRC), the rules are designed to simplify listing requirements and improve registration and verification procedures. The goal: to divert fast-growing companies from the temptation to raise funds outside of China. Quoted by FinancialTimesYi Huiman, chairman of the China Securities Regulatory Commission, said at an IPO ceremony on Monday morning that the reforms represented “a comprehensive and fundamental change” and that this first batch of ten IPOs constituted “an important new step in the reform and development of China’s capital markets”.
“The biggest impact is that the market ecosystem has changed and investors will pay more attention to company fundamentals. Only high-quality companies will survive,” the GlobalTimes Yang Delong, chief economist at First Seafront Fund Management Co.
A westernization of the Chinese stock market system?
The system had already been adopted for the first time in 2019 by the STAR Market, the Shanghai technology stock market, the equivalent of the Chinese Nasdaq. In 2020, it is the turn of the Shenzhen start-up compartment, ChiNext, to favor these more relaxed rules, then the Beijing Stock Exchange in 2021 in order to improve their attractiveness.
However, despite the removal of the formal requirement to obtain CSRC approval to list on the stock exchange, local brokers told the FinancialTimes that regulators continue to exert strong influence over which companies are granted access to China’s capital markets.
This new Chinese regulation on IPOs comes less than two years after the launch of the Beijing Stock Exchange. This new financial center aims to cultivate “little giants”, i.e. start-ups with high growth potential and equipped with advanced technology. The launch of this new Stock Exchange was then “a key step in the reform of the Chinese capital market”, explained the chairman of the Chinese Securities and Markets Regulatory Commission (CSRC) Yi Huiman. “It is important because it will strengthen the multi-level capital market, improve the financing system for SMEs, boost innovation and modernize the Chinese economy,” he added.
With this relaxation of stock market rules, the Asian giant intends to create an investment and financing ecosystem that promotes the emergence and development of technology and cutting-edge companies. Above all, the objective is to contain the flight of Chinese nuggets outside the borders of the Middle Kingdom to finance themselves in the United States or on the Hang Seng Tech, the predominantly technological index of the Hong Kong Stock Exchange. And thus overshadow the great Western powers, with the United States in the lead in the race for domination of the oh so strategic technological sector.
“Expanding the registration-based IPO system will streamline the listing process and attract companies that have gone public in the United States or Hong Kong in the past because they could not meet mainland China’s requirements,” Industrial Securities analysts said.
Sabrina Sadgui – ©2023 BFM Bourse