Deadline for IPO reforms extended by two years

China's top legislature has extended the deadline for the government to launch registration-based initial public offerings for another two years, a move reflecting a gradual and cautious approach of the country's IPO reform, analysts said on Monday.

The top legislature had earlier given an authorization to the central government to shift from the approval-based IPO system to the registration-based system two years ago. The earlier approval was scheduled to expire on Wednesday. The new deadline for the authorization will now expire on Feb 29, 2020.

The move by the top legislature was seen a slowdown of the country's IPO reform, one of the most significant and anticipated reforms in China's capital market, analysts said, but it did not change the overall direction of the reform.

"It does not mean that the regulators have completely abandoned the reform but it showed that they wanted to push it in a gradual and low-profile way," said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.

Liu Shiyu, chairman of the China Securities Regulatory Commission, said that the current capital market in China is not fully adaptable to a registration-based IPO system and the existing market system requires further improvement.

The risks in the financial markets of developed economies have also brought more uncertainties to China's IPO reform, Liu added, noting the extension of the reform deadline was to maintain the policy consistency and to avoid misunderstanding and doubt from investors.

In theory, China's IPO reform would require the amendment of the Securities Law which needs approval by the country's top legislature. But the revision of the law came to a standstill after the country experienced a dramatic stock market crash in the summer of 2015.

Lawmakers then decided to authorize the government to launch the registration-based IPO system without finishing the amendment of the Securities Law.

"There still lacks consensus among lawmakers on the draft revision of the Securities Law. The extension of the authorization will give the regulators more flexibility of carrying out necessary reforms," Dong said.

Sources close to the CSRC have said that the regulator will seek to make breakthroughs in the IPO reform this year through executive measures if the legal process of amending the Securities Law gains no progress.

The CSRC already vowed to revamp the listing rules of the startup board in Shenzhen to compete with international stock exchanges and to retain high-growth and promising technology and innovative companies in the domestic market.