Chinese Lawmakers Pave Way for Start of Market-Based IPO System

Chinese lawmakers cleared the way for securities laws to be changed as early as March for the nation to introduce a new registration system for initial public offerings.

The Standing Committee of the National People’s Congress passed a resolution to allow the State Council, or cabinet, to make the adjustments, the official Xinhua News Agency reported Sunday on its official microblog.

China currently relies on the China Securities Regulatory Commission to act as a gatekeeper for offerings, with a seven-person listing-review committee examining each application. Under a registration system, questions of IPO supply and timing would be left to companies and the market, rather than regulators. The new regime would “thoroughly” change the investment-banking operations of China’s brokerages by giving them more power to determine IPO pricing and by boosting their business volumes, Huatai Securities Co. said earlier this month.

Even after President Xi Jinping pledged in November 2013 to give markets a “decisive” role in the world’s second-biggest economy, the CSRC still pressures companies planning IPOs to price them at below-average valuations in an effort to protect small investors. The perception that IPOs are riskless has encouraged some investors to use borrowed money, exposing them to deeper losses once prices stop climbing, according to Shenwan Hongyuan Group Co.

— With assistance by Jing Jin

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