Approvals of initial share offerings are slowing in China once again as local share prices slide, but major state-controlled newspapers are urging the stock market regulator not to “balk or backtrack” on reforms. The China Securities Regulatory Commission (CSRC) has slowed approvals for initial public offerings (IPOs) in recent weeks, a period which has seen major stock indexes retreat. The media’s calls come at a time that international investors are watching Beijing’s commitment to free-market reforms more closely than ever.
Global index provider MSCI will decide on June 20 whether to add Chinese shares to its key equity benchmarks used by asset managers, which could trigger a flood of foreign buying. China’s on-again, off-again pattern of IPO approvals has been typical for years when authorities see the need to shore up markets, and their penchant for interventions has been cited as one of the key concerns holding back global investors. Such support measures are often welcomed at home, but in a rare chorus of caution, China’s three major state-controlled securities newspapers all published editorials on Monday urging the regulator to “hang on” in the face of public criticism that a flood of new supply is depressing share prices.
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Over the past few weeks, the CSRC has approved an average of 2.1 billion yuan ($309 million) of IPOs each week, down from a weekly average of over 5 billion yuan earlier in the year. That has led to speculation that IPOs would be suspended altogether if the market falls much farther. “If IPOs are suspended, it is far from certain whether the market can be rescued, but the harm to market-oriented reforms and the real economy is predictable,” the China Securities Journal said in an editorial on Monday, calling on regulators to be “adamant” toward reforms.
Echoing that view, the Shanghai Securities News said IPOs are not the determinant factor of stock market trends, and regulators should not “balk, or even backtrack” on reforms. The newspaper noted that the CSRC had suspended IPOs nine times in history, but each time the move failed to reverse the bearish trend and heightened investor uncertainty. Another official newspaper, the Securities Times, said regulators should not bow to pressure from critics. Regulators should “dare to touch the cheese of interested groups, and be consistent, and serious in policies,” the editorial said.
“Generally speaking, China’s securities market regulation is not too harsh, but too lenient.” The editorials highlight the dilemma faced by CSRC Chairman Liu Shiyu, who needs to balance reforms and market stability. Liu, who took over as head of the CSRC in the aftermath of the 2015 market crash, has been criticized by some academics and investors for causing renewed market sluggishness, by flooding the market with IPOs and cracking down on stock speculation. However, the Financial News, a journal run by the People’s Bank of China, carried a different tone on the IPO issue in a commentary which also ran on Monday.
Fewer IPO approvals won’t necessarily affect the stock market’s performance but show a change in the regulator’s stance, which will improve investor sentiment and stabilize the stock market, the commentary said. After a solid start to the year, China’s benchmark CSI300 index started skidding in April on worries that the economy was losing steam and in response to a regulatory clampdown on riskier types of lending which has prompted some companies to hoard cash. In recent weeks, authorities have stepped in with a slew of measures to stabilise the country’s financial markets ahead of a major political leadership reshuffle later this year. The central bank has been stepping up injections of funds into the financial system to ease fears of a potential cash crunch like that which sent lending rates soaring in June 2013. It has also engineered a sharp rise in the yuan currency against the dollar to ward off speculators betting on further declines.