China rolls out registration-based IPO system across the board in milestone reform

China has officially rolled out its across-the-board registration-based initial public offering (IPO) system, with relevant rules coming into effect on Friday, according to the country's securities regulator.

Of milestone significance in the reform of China's capital market, the move has basically put in place the institutional arrangements for the registration-based system, the China Securities Regulatory Commission (CSRC) said in a statement.

The rules involve simplifying listing requirements, optimizing registration procedures, improving the regulations on underwriting and on major asset restructuring of listed firms, strengthening oversight and law enforcement, and stepping up the protection of investors.

The registration-based IPO reform -- initiated in 2018 and successively adopted by the science and technology innovation board, the ChiNext board, and the Beijing Stock Exchange -- has opened up a new vista for the development of China's capital market, according to the commission.

The essence of this reform is letting the market make the choice under tightened market and legal constraints, an official with the commission noted. 

INFORMATION DISCLOSURE AT CORE

"Compared with the approval-based IPO system, the new system takes information disclosure as its core, making the listing process more regulated, transparent and predictable," said Chen Li, chief economist of Chuancai Securities.

"Instead of relaxing requirements on information disclosure, the system imposes stricter standards," Chen said.

The system also shifts the emphasis of market oversight to information disclosure, which will function as the ballast for the standardization of the capital market, as high-quality information disclosure can help prevent or rectify investment misjudgment caused by information gaps and unlawful trading, industry insiders noted.

Under the registration-based IPO system, stock exchanges will comprehensively evaluate whether the applicants are qualified to issue stocks and be listed, and whether they meet the requirements for information disclosure.

The CSRC will check the companies' alignment with the country's industrial policies and the features of the respective boards, help the stock exchanges navigate potential problems during evaluations and make registrations based on results of evaluations. 

BOOST TO DIRECT FINANCING

The overall adoption of the registration-based IPO system will lower the listing thresholds and boost direct financing, said Li Qiusuo, managing director of the research department at China International Capital Corporation Limited.

Based on the results of its pilot run, the system is likely to enhance the inclusiveness of the capital market, allowing unprofitable firms, red chips and those with special equity structures to be listed.

This mechanism has allowed sci-tech start-ups easier access to the capital market, leading to a significant increase in the proportion of technology companies on the stock markets.

Dong Dengxin, a researcher with the Wuhan University of Science and Technology, said the reform would provide more opportunities for firms with high-growth potential, advanced technologies, and research and innovation prowess, and facilitate high-level circulation of benefits among sci-tech companies, capital and the real economy.