On Feb. 17, the China Securities Regulatory Commission (CSRC) issued rules and regulations governing registration-based initial public offerings (IPOs) across the board in the domestic stock market, pushing forward the reforms of China’s US$11-trillion stock market.
Compared with the previous approval-based IPO mechanism, a registration-based IPO process stresses oversight and law enforcement, placing emphasis on information disclosure by public companies, and making it easier for companies to become listed and delisted.
The registration-based IPO system was first adopted by STAR Market, a NASDAQ-type tech board, in Shanghai in 2019 and by ChiNext, a startup market, in Shenzhen in 2020. The Beijing Stock Exchange rolled out its registration-based IPOs in 2021.
As a product in the early phase of China’s capital market, the approval-based IPO mechanism had its limitations. The concentration of approval authority made the process not as transparent as it should have been and left room for potential corruption.
The arduous procedures and the long waiting list created a bottleneck in the supply of listed companies and an imbalance in the financing structure of the domestic economy.
In the course of fast economic growth, lack of access to direct financing in the capital market can slow the growth of companies and shift too much financial risk to the traditional banking system.