New IPO measures see positive response

The capital market will be able to better serve the real economy with the full implementation of the registration-based initial public offering mechanism throughout the A-share market, which will help increase direct financing and nurture technology innovation, analysts said.

The China Securities Regulatory Commission, the country's top securities watchdog, released 165 sets of detailed measures on Friday for the adoption of the registration-based stock issuance system across the A-share market.

The measures streamline listing requirements, lift administrative restrictions on the price and size of IPOs, and optimize rules for underwriting and sponsoring businesses.

The market responded positively. On Monday, the benchmark Shanghai Composite Index closed 2.06 percent higher at 3,290.34 points, while the Shenzhen Component Index gained 2.03 percent to close at 11,954.13 points. A-share securities firms reported the biggest daily price increase of 4.02 percent on average.

Analysts from Huatai Securities said the mechanism directly benefits the A-share non-banking financial sector as well as financial information technology solution providers.

The mechanism, which gives the market a decisive role in IPOs, was first introduced on a trial basis to Shanghai's STAR Market in 2019, and then Shenzhen's ChiNext in 2020 and the Beijing Stock Exchange in 2021.

The experiences of the three boards indicated the A-share market is likely to have a bullish performance this year and next year amid abundant capital inflow, said analysts from Zhongtai Securities.

Hu Xiang, chief non-banking financial analyst at Soochow Securities, said the mechanism can help increase the direct financing ratio in the Chinese capital market.

According to Soochow Securities, direct financing, including stock and bond issuances, accounted for only 35 percent of all financing value in China in 2022, while the ratio was 83 percent in the United States.

Further reforms within the Chinese capital market, such as an optimized delisting mechanism, are still crucial to facilitate the maturity of the A-share market by smoothing the listing process for industry leaders and excluding the less competitive ones at a faster pace.

As a result, the financial sector can better serve the real economy, Hu said.

Chen Li, chief economist at Chuancai Securities, said that the multi-layered structure of the Chinese capital market will be further consolidated with the registration-based IPO mechanism.

The main board will mainly serve the flotation of large-cap blue-chip companies. The STAR Market in Shanghai will focus on "hard technologies" such as chipmaking and biomedicine, while ChiNext in Shenzhen will aim for upgraded traditional industries that integrate new technologies and business models.

Under earlier IPO regulations, intangible assets had to account for less than 20 percent of the applicant's net assets. The new measures have removed this limit, which was considered a huge barrier for technology companies to go public, said Ye Xiaojie, an associate professor at Shanghai National Accounting Institute.

Tech companies usually possess a considerable amount of intangible assets such as patents. Removing the limit was a logical move in light of the leapfrogging development of technology companies in China in recent years, he said.

More capital will be directed to high-tech companies with the implementation of the registration-based IPO mechanism, facilitating industrial upgrading and transformation. This is also conducive to China's high-quality economic growth, said Dong Dengxin, director of Wuhan University of Science and Technology's Finance and Securities Institute.