China plans rollout of registration-based IPOs to all exchanges

The registration-based system - as opposed to the traditional approval system - was first introduced by the Science & Technology Innovation Board, or Star Market, in 2019. It was expanded to Shenzhen's start-up board ChiNext in 2020 and was used upon the launch of the Beijing Stock Exchange launched in 2021.

The speed and simplicity of the Star Market appeal to private equity investors. Approximately, USD 107bn has been raised through 550 PE-backed IPOs on mainland exchanges in the past three years, according to AVCJ Research. The Star Market accounts for 48% of the offerings and 58% of the proceeds. ChiNext is second on 31% and 23%.

According to draft rules published by the China Securities Regulatory Commission (CSRC), the main boards in Shanghai and Shenzhen will also convert, making the registration-based system a standard for all IPOs. The CSRC will fully relinquish its reviewing powers and transfer vetting power to the stock exchanges.

“The exchanges must conduct a comprehensive review of whether companies meet the issuance conditions, listing conditions and information disclosure requirements. The CSRC will decide whether to approve registrations based on the review opinions provided by the exchanges,” the regulator said in a statement.

In theory, the review process will focus on the quality and compliance of a company's information disclosure; it will no longer make judgments as to the investment value of the company. Substantive thresholds will also be removed.

However, in practice, industry sources note that exchanges like the Star Market set very high qualification thresholds for technology companies, based on statistics such as the proportion of staff involved in R&D staff and the number of patents obtained. Moreover, the process is not necessarily speedy. Many candidates have withdrawn applications because of ineligibility or extended waiting periods.

For example, LiDAR technology developer Hesai Technology applied to list on the Star Market in 2020 but withdrew early the following year. At the time, an investor in the company observed that not only is the listing process lengthy, but once it has begun applicants are unable to raise new funding because they can't change their shareholder structure. Hesai closed a USD 300m Series D shortly after withdrawing and applied for a US IPO in January.

The draft rules include language that underlines political oversight. “The CSRC will insist on the early introduction of political structures that emphasise a clear-cut approach and actively adapt to new situations and tasks,” the statement said.

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• Topics
• Greater China
• Regulation
• IPO
• China
• CSRC