China is looking to lure back companies to its stock exchanges with IPO reforms that are designed to simplify listing requirements and improve registration and vetting processes. The move indicates the Chinese government's desire to encourage new IPO listings. Per Pitchbook, the reforms — which went into effect Feb. 1 — are already having an impact, with reports suggesting an increased activity on both Chinese exchanges — the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Additionally, the first cohort of companies that listed on the exchange following the rule changes have seen a significant increase in share prices.
Sixty-one VC-backed Chinese startups have gone public this year, raising $45B through their IPO debuts, per Pitchbook. In Q1 2023, 39 companies listed on Chinese exchanges, 22% down from the previous quarter. VC-backed startups have yet to increase their listings. However, the new reforms are poised to increase the number of VC-backed startup listings later this year. IPO listings declined in China, mimicking the global trend after the rout in technology company prices and lack of investor appetite. China's ongoing tensions with the U.S. and the impact on businesses due to its "zero-COVID" policy further hampered the number of listings on its exchanges. As a result, foreign investors also stayed away from investing in publicly listed Chinese companies. In the past, Chinese companies, such as e-commerce giant Alibaba and app maker Baidu, have chosen to list in the U.S. over China due to a host of factors. The new rules aim to reverse the trend and make it easier for companies to list on its two exchanges. The new rules have empowered the exchanges to grant listing approval to companies. Previously, China's securities watchdog — China Securities Regulatory Commission (CSRC) — would grant approval to companies looking to list through an approval-based system after thoroughly reviewing the company's financials, business plans, management, and compliance documents. With the transfer of the approval system from the watchdog to the exchanges, the registration process is expected to become simpler and quicker. With the new system, the exchanges will have the responsibility of the vetting and approval process, with CSRC only restricted to making sure the listings are in line with national industrial policy. Additionally, CSRC has removed the administrative restrictions on the issuance prices and size of shares, letting the market dictate the share prices. The IPO pricing cap, meant to prevent volatility in the initial few days of trading, has also been abolished. CSRC will also support variable interest entity structures — which allow foreign investors to own shares in offshore entities where the Chinese company can transfer profits — as long as they are compliant with regulations. |
