IPO pri­or­ity is not fi­nan­cial com­pa­nies

China Daily (Hong Kong) - - COMMENT - TEN LO­CAL BANKS

as well as many se­cu­ri­ties deal­ers and fu­tures bro­kers are re­port­edly in line for their ini­tial public of­fer­ing in China’s A-share mar­ket, rais­ing con­cerns about the shrink­ing mar­ket liq­uid­ity for bricks-and-mor­tar en­ter­prises and in­no­va­tion-driven com­pa­nies. Bei­jing Youth Daily com­mented on Thurs­day:

Fi­nan­cial en­ter­prises at all lev­els are striv­ing for a place in the stock mar­ket this year, each with dif­fer­ent in­ten­tions in mind. Most small lo­cal banks want to raise funds, while se­cu­ri­ties deal­ers want to fur­ther ex­pand their busi­ness.

They have good rea­sons to do so as IPOs in the A-share mar­ket have be­come smoother dur­ing the past few months. China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, the top se­cu­ri­ties reg­u­la­tor, ap­proved 52 IPO ap­pli­ca­tions last month, mark­ing the high­est monthly to­tal this year.

Ad­mit­tedly, all qual­i­fied en­ter­prises should be given a green light to list on the stock mar­ket. But ex­tra cau­tion and scru­tiny are called for when it comes to the IPO ap­pli­ca­tions by credit in­sti­tu­tions, es­pe­cially those fi­nan­cial en­ter­prises with high and risky lever­age.

In other words, their ex­pan­sion am­bi­tions should be re­stricted to re­duce the risks of cap­i­tal short­age. More im­por­tant, rais­ing money via the stock mar­ket is not sup­posed to be­come a pri­mary fi­nanc­ing choice for banks and bro­ker­ages.

Un­der the ap­proval sys­tem for public of­fer­ing of stocks, the fi­nanc­ing chan­nels through IPO ap­pli­ca­tions are lim­ited. As such, pri­or­i­ties should be given to en­ter­prises in ur­gent fi­nanc­ing need, such as bricks-and-mor­tars and small- and medium-sized com­pa­nies with a fo­cus on cut­ting-edge tech­nolo­gies, rather than fi­nan­cial in­sti­tu­tions.

A ma­jor ob­sta­cle to the de­vel­op­ment of the real econ­omy is the lim­ited di­rect fi­nanc­ing op­tions avail­able for tra­di­tional en­ter­prises, many of which have to go through in­ter­me­di­ary in­sti­tu­tions such as banks, which means ex­tra costs. Widen­ing fi­nan­cial play­ers’ ac­cess to di­rect fi­nanc­ing would not only make it harder for en­ter­prises in need, but also strengthen the role of banks as fi­nanc­ing in­ter­me­di­aries.

That is hardly what the stock mar­ket is de­signed to achieve. Be­sides, the ne­ces­sity of re­strict­ing fi­nan­cial com­pa­nies’ IPO ap­pli­ca­tions is self-ev­i­dent, be­cause they have a great ap­petite for stock mar­ket cap­i­tal and are more sus­cep­ti­ble to spec­u­la­tive ac­tiv­i­ties.

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