Stock issue reform still on the way

Investors at a securities brokerage in Beijing, Feb 7, 2014. Feng Yongbin / China Daily

Newly pledged measures to ease financing burdens helped further China's reforms on stock issuance, one of the most-anticipated moves in the country's drive to open its capital market.

At the recent State Council meeting, presided over by Premier Li Keqiang, China's cabinet pushed for a lower threshold for small and innovative firms to get listed on the stock market, scrapping the requirement that only companies that register continuous years of profits are eligible to be listed.

"To help smaller firms get access to direct financing on the stock market is even more important than increasing loans for them, and it is a pioneering arrangement," said Zhang Liqun, a researcher with the Development Research Center of the State Council, who's meeting concluded Wednesday.

China's Securities Regulatory Commission (CSRC), the country's top security watchdog, has been pledging to reform the country's IPO system from approval-based to a registration-based one since 2013.

Xiao Gang, head of the CSRC, said at the beginning of 2014 such reform would be finished by the end of the year. But so far, the reform details have not yet been released. The State Council once again urged progress on the reforms during Wednesday's meeting.

At a recent CSRC meeting, experts attributed the tardiness to an unfinished amendment to the law, security companies and supervision methods.

The first deliberation for a new amendment in China's Securities Law is planned for early December. This means the registration-based IPO system will hardly be implemented soon, even the reform's detailed program can be mapped out as scheduled.

The reform calls for changing the rules of brokerage management, bourse and listed company supervision and illegal inspection, almost a complete shuffle of the current system.

Whether or not security companies and stock exchanges will be well prepared for the changes is another crucial problem.

IPO scandals in the current system, such as disclosure fraud, will face more severe challenges in a less strict IPO system.

"We applaud and prepare, without knowing if we can adapt ourselves to the upcoming new policy," said a broker manager headquartered in Shenzhen.

Meanwhile, the role of the CSRC will also be altered because bourses will be responsible for the approvals.

Li Xunlei, chief economist with Haitong Securities, said the current image of the CSRC is an approval decider which will be converted to a supervisor when the reform is kicked off.

Gong Fanrong, leading the amendment's first deliberation, said scrapping the requirement for continuous years of profit will be included in the new amendment, in order to lower the threshold for small and innovative firms to get listed on the stock market.

"China's best e-commerce company going listed abroad has revealed the defect of the current Securities Law," he said.

China's e-commerce giant Alibaba marked a record-breaking IPO of $25 billion on the New York Stock Exchange in September.

"Such phenomenon represents huge losses for the Chinese stock market and calls for the urgent change of law and rules," said Liu Zhou, president of Fortune Capital, one of China's earliest market-oriented venture capital firms.