Chinese new-economy “unicorns” have become hot items in the market this year. China’s top securities regulator has fast-tracked the listing of Foxconn Industrial Internet, a unit of the world’s biggest contract manufacturer, and WuXi AppTec, a leading biotechnology research outsourcing provider, indicating the authorities’ resolve to have more such companies listed on domestic bourses.
Meanwhile, the return of overseas-listed Chinese internet giants including Baidu, Alibaba, Tencent and JD.com to list domestically through the Chinese Depositary Receipt (CDR) route has become a real possibility, implying a potentially profound change to A-share market structure.
The Hong Kong stock exchange is also working on an overhaul of its listing regime. The bourse intends to allow biotech firms that have yet to post a profit and companies with dual-class share structure to list as part of its efforts to lure more new-economy firms.
Singapore exchange, too, is considering the introduction of dual-class-share companies.
The race among various exchanges to list Chinese unicorns, or those valued at US$1 billion or more, is set to intensify.
Separately, China plans to delay a registration-based stock listing system for another two years to Feb. 29, 2020. That means the long-awaited IPO registration reform is not going to happen in the short term.
Many Chinese firms have strong financing demand. It is said that more than 10,000 companies are still queuing up to get listed. Given the current pace of listing approvals, however, they might have to wait 10 more years.
That is why there have been repeated calls to speed up the listing reform process.
But is the registration-based listing system, as contrasted to the approval-based system, suitable for China’s domestic capital market? Is the China market ready for the change?
Mature markets typically adopt the registration system, which means regulators normally won’t reject a company’s listing application as long as certain criteria are fulfilled.
Under this system, the market plays the key role. If things don’t work out, investors stand to suffer losses. If there are malpractices involved, sponsors might face serious penalties.
It seems that China has yet to fulfill all the pre-conditions to introduce such a system, including a proper legal infrastructure.
The full article appeared in the Hong Kong Economic Journal on April 9
Translation by Julie Zhu
[Chinese version 中文版]
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