Regulator vows to speed up IPOs

Tight lid on illegality promised amid freer market emphasis

China’s top securities regulator vowed on Sunday to facilitate more market-oriented share offerings while keeping market manipulation and other illegal activities under tighter scrutiny.

Liu Shiyu, chairman of the China Securities Regulatory Commission, said the regulator will accelerate the pace of IPO approvals, signaling the CSRC’s intention to reduce government intervention in share sales and allow the market to play a bigger role.

Liu rejected the regulator’s previous practice of freezing IPO approvals to stabilize stock prices amid major downturns and pledged “new progress and breakthroughs” in key reforms.

“The mainstream view is that… the market is ready for faster approval of IPOs with an appropriate pace and amount,” Liu told reporters at a Sunday news conference.

The securities chief said the increase in the number of good-quality listed companies will attract additional capital into the market, dismissing concerns that more new shares will drain liquidity and depress stock prices.

Liu’s comments were seen as fresh evidence of the regulator’s desire to push marketdriven IPO reform and to shorten the line of more than 600 companies waiting to float shares.

“Liu seems to be the first CSRC chief to publicly denounce the practice of shutting down the IPO market whenever there is a crisis,” said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.

“His comments could herald the real beginning of a gradual end of government intervention, and they also mean that turning the IPO approval on and off at the regulator’s will is likely come to an end,” Dong said.

The reform of the IPO system has long been a thorny issue for the Chinese regulator. The pace and procedure for companies to sell shares in the stock market, including the timing and pricing of the IPOs, has been tightly controlled. Companies usually have to wait for months or even years to float shares in the public market.

The regulator suspended IPO approvals and postponed reform as it sought to stem the dramatic market rout in the summer of 2015. But in recent months, it has noticeably sped up the pace of approvals.

Hong Hao, chief strategist at BOCOM International, said Liu’s comments signaled a major attitude shift by the regulator, and easing the IPO approval will help rein in rampant speculation in the market.

On Sunday, the securities chief also pledged to continue the crackdown on manipulation and illegal activities by the “big financial crocodiles” and “barbarians”.

“There is only a half-step distance between being a financial mogul and being a financial crocodile,” Liu said, warning that any market malpractice leaves evidence.

In addition to pushing key reforms, the CSRC vowed to further open up the Chinese capital market.

Fang Xinghai, vice-chairman of the CSRC, said the government plans to increase stakes held by foreign financial institutions in their local joint ventures. Fang added there is a desire for capital market opening under bilateral agreements, given negotiation of investment treaties with the United States and the European Union.

ON FRIDAY, THE TOP INSURANCE REGULATOR REMOVED YAO ZHENHUA, chairman of Foresea Life Insurance, from his position and banned him from the insurance industry for 10 years for irregular market operations, after speculative purchases of stakes in listed companies including real estate giant Vanke and leading appliance manufacturer Gree. Beijing News commented on Saturday:

The China Insurance Regulatory Commission said in a statement that Foresea Life violated insurance regulations and provided false information about its increase in capital.

In fact, Yao is not alone in encroaching on bricks-and-mortar businesses at the risk of disrupting the capital market. In 2015 alone, nine insurers built up their stakes in some 31 listed companies, and seven insurance investors did the same with 14 listed companies last year. Some of them, the Baoneng Group included, of which Foresea Life is an affiliate, are suspected of fueling speculation in the market at the expense of small investors and threatening the management of public companies.

For example, bypassing the restrictions capping the maximum investment in equities could cause unnecessary turbulence in the equity market, which might affect the operations of other insurers and banks.

The insurance regulator therefore decided to act to clean up the illegal practices and nip any financial risks in the bud. What the insurers should do is to offer more financing options to the enterprises struggling to attract investment, not make speculative investment in them.

The hefty sanctions on Yao should serve as a key step in drawing the boundaries over which private capital cannot cross.