China’s top securities regulator has just announced the official launch of the share registration issuance system, in move which domestic observers have hailed as a landmark reform of the Chinese capital market that will greatly facilitate fund-raising by companies.
On February 17, rules for the comprehensive implementation of the share issuance registration system were issued and implemented by the China Securities Regulatory Commission (CSRC), just weeks after it announced the official launch of the reforms on 1 February.
20 February marks the first day that the main boards of the Shanghai and Shenzhen bourses will directly accept applications from applying companies for initial public offerings (IPOs), refinancing and restructuring.
State-owned media hailed the launch of the reforms as a major step toward driving the development and maturation of China’s capital markets, in line with directives recently announced by the central government.
The 20th National Congress of the Communist Party of China (CPC) held in October 2022 called for “improving the functionality of capital markets and increasing the share of direct financing.”
“Led by the comprehensive implementation of the registration system, the comprehensive deepening of capital market reforms has accelerated the emergence of a new climate,” said China Securities Journal.
“The degree of marketization has continued to deepen, the development of the rule of law has moved towards intensive and detailed cultivation, and the bi-directional opening of the capital market has accelerated. In the eyes of industry insiders, the capital market stands at a new starting point for development towards a mature market.
“Coordinating and promoting a raft of key institutional innovations will better employ the role of the capital market as a hub for efficient resource allocation and open a new chapter in the development of a modern capital market with Chinese characteristics.”
“There is no doubt that the comprehensive registration system will further enhance the ability of the capital market to serve the real economy,” said an editorial published by Securities Daily.
“Through the reform of the registration system, the structure of the multi-tier capital market has become clearer, with more distinctive features and greater inclusiveness.
“The main board mainly serves large-scale enterprises at a mature stage of development, the Science and Technology Innovation Board highlights the characteristics of ‘hard technology’, and the ChiNext mainly serves growth for innovative and entrepreneurial enterprises. A the same time, Beijing Stock Exchange and the National Equity Exchange System jointly establish a position for serving innovative small and medium-sized enterprise owners.
“The sector positioning of the market is clearer, basically covering enterprises of different industries, types, and growth stages, effectively meeting the financing needs of the real economy, and continuously improving the ability of the capital market to serve the real economy.”
“With the implementation of the comprehensive registration system, we will have more complete and normalized delisting mechanisms, multiple exit channels for listed companies that will be smoother, and further acceleration in the clearing out of risky companies” said Zhao Xijun (赵锡军), co-dean of the China Capital Market Research Institute at Renmin University of China.
Yang Chengchang (杨成长), chief economist of Shenwan Hongyuan Securities Research Institute, said that following implementation of the comprehensive registration system, the ties between multi-tier capital markets will be closer, and the higher valuation levels and liquidity of the Shanghai and Shenzhen main boards will attract more high-quality companies to launch IPO’s on the New Third Board to IPO or to transfer between boards.
At the same time, the New Third Board market will also provide exit channels for companies delisted from the main board.