China has vowed to protect its investors with ‘teeth and horns’, introducing new rules to oversee its already diminished market for initial public offerings (IPOs).
The country’s securities regulator has said it will vet IPOs more closely to prevent excessive fundraising and crack down hard on securities fraud to make China’s capital market “safe, regulated, transparent, open, vivid and resilient”.
The China Securities Regulatory Commission (CSRC) has also promised action against accounting manipulation practices such as “big bath” – in which a company’s management makes poor results look even worse in order to make future performance look better.
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The rules, published on Friday, come as China’s benchmark indexes chart a recovery from five-year lows hit in early February.
China’s benchmark CSI 300 Index is up 4% this year but is still 40% down from a peak hit in 2021, pressured by a slowing domestic economy, a deepening property crisis, capital outflows and rising political tensions with the West.
The rules also follow a change of guard at the securities regulator after Beijing sacked its chairman last month amid a market fall that decimated investor sentiment.
Under its new chief, Wu Qing, the CSRC has taken a series of measures to put a floor beneath the country’s markets – ranging from a crackdown on the $260 billion “quant” funds industry to wide-ranging curbs on short-selling.
Slowing IPO market
The CSRC has already slowed the pace of public share sales since last August. China’s new share sales, which once dominated the global IPO market going by proceeds, raised nearly 40% lesser funds by the end of 2023.
The securities regulator has also continued to tighten laws around the IPO market, leading to a record number of Chinese firms abandoning their fundraising plans this year.
With its new rules the CSRC has pledged to further strengthen supervisions of company listings.
The regulator will adopt “counter-cyclical adjustment” in the IPO market to take into account supply and demand in the secondary market, and will also boost onsite inspections on listing candidates.
Fraud, false statements and other transgressions will be severely punished, according to the rules.
‘Don’t show off wealth’
The regulator has also pledged to step up supervision of listed companies. It pledged to prevent big shareholders from reducing holdings illegally, for example via short-selling.
In addition, the CSRC urged listed companies to increase dividend payouts and take concrete measures to strengthen market value management.
Listed companies are encouraged to buy back shares, and constituents of main stock benchmarks are required to draw up plans for stock purchases in the event of share price slumps.
To promote healthy development of brokerages and mutual fund companies, the CSRC also warned against money worship, extravagance, hedonism and “showing off wealth”.
Last year, Chinese authorities issued similar diktats to the country’s bankers – a move largely seen to be part of the authoritarian Xi Jinping government’s common prosperity agenda.
The push led Chinese financial firms to ask their staff to ditch everything from five-star hotels to flaunting luxury meals on social media. Many also flattened out their employees’ pay and benefits.
- Reuters, with additional editing by Vishakha Saxena
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