Since the establishment of China's stock market, there has been a controversy over the IPO system. After 20 years of continuous study and research, especially since the deepening reform undertaken by the 18th National Congress of the Communist Party of China in 2012, the China Securities Regulatory Commission has announced the latest IPO system.
This latest system not only draws on the experience of the market-oriented Western IPO system, which is guided by law, but also creatively uses electronic transaction data for innovation.
The new IPO system features a Stock Issuance Examination Committee to conduct substantive reviews of proposed listings and offer opinions, in accordance with the law. In addition, limits have been put on IPOs' price-earnings ratio, and the rule that the issue price of a stock should be far less than the listed trading price has been basically formed.
The most essential factor is to directly channel capital into the real economy. Before the formation of the new IPO system, there was a huge amount of money - about 1 trillion yuan ($153 billion) - sitting in the stock market specifically aimed at new share purchases. This money was speculative capital, and if it is driven out of the stock market, it will definitely force the owners to find a new target. This will contribute to the prosperity of the real economy.
It will reduce the cost of capital for the real economy by increasing the supply of funds in the market, thereby reducing the level of interest rates and pulling down the capital costs of the real economy. It will also increase stock market liquidity, because some of that money will be invested in the secondary market.
With the new system, the risk appetite of funds will increase. The capital that was used to purchase new shares enjoyed more than 10 percent risk-free income for a long time. Eliminating this money will destroy the risk-free, high-yield capital. The new system will raise the stock market's valuations and promote the stock market's progress. (Source: Global Times)
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