China’s Stock Market Abuzz with Concerns Over Sluggish IPO Scene
China’s stock market is currently abuzz with concerns over the sluggish IPO scene, with recent strengthening of regulations to improve market quality adding to the mix. The old IPO case of Guangdong-based Liangang Optoelectronic Technology Co Ltd at the ChiNext of the Shenzhen bourse in June 2023 has reignited market concerns over IPOs.
The Shenzhen Stock Exchange raised concerns on Nov 17 regarding details in Liangang’s IPO application, particularly the fact that 98 percent of the company’s stake is held by promoters and employees, with only 2 percent being offered to retail investors via the IPO. Liangang specializes in optical communication and electroacoustic products, with its IPO sponsor CITIC Securities responding to the bourse’s concerns by highlighting the company’s solid corporate governance structure and internal controls.
Despite the company’s reassurances, some investors interpreted the response as a challenge to the stock exchange. However, independent stock market analyst Wang Jiyue dismissed these interpretations as unfounded, stating that equity concentration should not hinder the IPO process.
The A-share IPO scene has seen a significant decline, with only 26 IPOs registered so far this year, down nearly 50 percent from the same period in 2023. At least 75 companies have withdrawn their IPO applications, shifting focus to securities firms serving as IPO sponsors. The regulatory environment has also become stricter, with the China Securities Regulatory Commission emphasizing the need for tight control over market entry and preventing profiteering through IPOs.
The increased supervision and stricter regulations are aimed at reducing the number of disqualified and risky companies in the market, ultimately lowering systemic risks and protecting investors’ interests. Financial intermediaries are urged to fulfill their responsibilities as gatekeepers of the capital market by selecting only qualified IPO applicants.
As the IPO landscape continues to evolve, market participants are closely watching for further developments and regulatory changes to ensure the quality and integrity of IPOs in China’s stock market.
