The Chinese government has stepped up its scrutiny and control of initial public offerings this year, capsizing any fundraising deals that it deems inconsistent with economic policy.
Data from Wind Info indicates that the China Securities Regulatory Commission has either overturned or deferred 105 IPO applications since the start of the year, as compared to 114 applications that received similar treatment during the five year period ending in 2016.
The number of applications that CSRC has rejected in 2017 alone exceeds the cumulative total of those overturned in the preceding four year period.
CSRC has also established a new issuance review committee for the purpose of “sternly [guarding] the quality barrier” of companies seeking equity financing.
The committee has either rejected or delayed 40% of the applications brought before it, as compared to a rejection rate of 18% from 2010 to 2016.
In tandem with this increased rate of rejection, however, CSRC has conversely lifted the pace of approvals, with 426 companies launching their IPO’s this year, and a shortening of the queue of applicants to 441 by the start of December from 725 in November last year.
The funding amount raised via listing this year has reached 224 billion yuan (USD$33.85 billion), for the highest total since 2011.
China’s heightening of IPO scrutiny runs contrary to calls from reformers for greater deregulation, on the grounds that expanded access to equity funding will reduce the heavy dependence of Chinese corporations on debt financing.
Critics also point out that heavy regulation of the IPO process confers immense power upon poorly paid officials when it comes to determining the fate of fundraising deals, increasing the scope of opportunity for bribery and corruption.
This problem has been highlighted by the arrest of a number of CSRC officials involved in the IPO approval process over recent years, prompting the regulator to conceal the identity of civil servants involved in specific deals.
According to analysts the heightening of IPO scrutiny is intended to thwart deals involving speculative investment, and more effectively channel financing towards real economic activity.
“The application cycle is shorter, so for companies doing real business the opportunity is greater,” said Yang Hai, strategist at Kaiyuan Securities in Xi’an to The Financial Times.
“The rejected companies typically have problems with their disclosures. Their assets aren’t clearly described, or they’re not real.
“China isn’t ready yet for the ‘wide entry’ style of some foreign markets.”