On Saturday, China’s top securities regulator urged underwriters to scrutinise companies seeking to list their shares, threatening to punish those attempting to bring sick companies to the IPO market. Chairman of the China Securities Regulatory Commission (CSRC), Yi Huiman, told a forum that recent stock market volatility in China is natural and risks are controllable, but warned against harmful international hot money flows.
Yi’s remarks come amid rising stock market volatility in China and around the world, as well as signs that Chinese regulators are tightening the screws on IPO approvals. A registration-based IPO system does not imply a relaxation of vetting standards, Yi said in his speech, which was posted on the CSRC website.
As a result, requirements on gatekeepers are actually higher, Yi said. It means providing investors with investable businesses that have more value. In a bold reform intended to give the market a greater role in assessing IPO candidates, China has introduced a US-style, registration-based IPO system on Shanghai’s Nasdaq-style STAR Market and Shenzhen’s start-up board ChiNext. However, since December, stock exchanges have increased IPO inspections, causing a growing number of companies to abandon their plans to go public. To justify the move, Yi argued that because China has the world’s largest retail investor base of 180 million, regulators must ensure that listing candidates provide complete and high-quality disclosures while also adhering to China’s industrial policies.
Many underwriters wear new shoes but walk down the same path, according to Yi, and they must increase their due diligence and take on more responsibility. Yi said that stock market volatility is manageable because the current leverage in China’s A-share market is not excessive. He did say, however, that China should strictly regulate enormous hot money inflows and outflows while continuing to promote normal cross-border liquidity flows.
Big inflows and outflows of hot money in any market would be harmful to healthy growth and must be strictly regulated, Yi said.
