New rules will aid development of capital markets
Print Edition
THE State Council, China’s cabinet, said late yesterday it plans to develop a system for direct bond issuance by local governments, streamline the approval process for initial public offerings and remove some restrictions on the use of financial derivatives.
At the same time, the Securities Association of China, on its website, published details of rules governing IPOs. The twin announcements came after the Shanghai benchmark stock index ended its fourth straight week of losses.
The largely technical IPO rules are viewed as a precursor for the resumption of new listings after a two-month break in IPOs. They deal with standards for underwriters and with investor participation in IPO share auctions.
China’s shaky stock markets have been hurt by perceptions that a flood of new listings will dilute existing share prices. About 600 companies are in the queue to list. So far, nearly 300 have submitted preliminary prospectuses, hoping to raise a combined 200 billion yuan (US$32.1 billion), according to estimates based on fundraising targets in the prospectuses.
The Shanghai Composite Index shed 0.2 percent yesterday to close at 2011.14.
The China Securities Regulatory Commission froze IPOs in late 2012 and relaxed the suspension earlier this year by allowing a group of previously approved companies to list.
However, accusations of overpricing and insider manipulation dogged the resumption, with dozens of companies cancelling IPOs, while the commission investigated underwriters and inside investors for irregularities.
Despite recurring problems, the State Council’s fresh commitment to market reform will hearten investors who have been waiting for a new round of rules to provide a more efficient allocation of capital, increase foreign investment and improve market transparency.
“China’s capital markets are still not mature, and some systemic problems still exist,” the State Council said in a statement on its website.
“New problems are continually appearing. We will persevere with market-based and rule-of-law-based orientation and uphold open, equal and fair market order.”
Under yesterday’s announcement, quotas will be increased for both inward and outbound foreign investment under the Qualified Foreign Institutional Investor and Qualified Domestic Institutional Investor programs.
A directive allowing direct access to bond markets would be a boon for local governments. Currently they are banned from selling bonds or borrowing from banks, but they often skirt the restrictions by borrowing through opaque special-purpose vehicles.
On derivatives, the cabinet promised to develop more varieties of commodity futures and options, commodity indexes and tradable carbon emission credits. Use of the riskier investments will, however, be limited to institutional investors and corporations.
The cabinet said it will work to develop the market for private equity funds, private asset management plans and venture capital funds, while cracking down on illegal fundraising practices.
It said some bonds will be allowed to trade on both the interbank bond market and on stock exchanges.
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