China may reduce the influence of the state on stock markets as part of its sweeping reform agenda, including making it easier for companies to list their stocks and making management of state-owned enterprises more accountable to shareholders.
In a pointer to a winding back of government influence in initial public offerings (IPOs), detailed plans released on Friday night included a pledge to “push forward stock issuance registration system reform” — a term previously used to refer to the listing process.
In developed economies, the process largely requires a company to register and go through a rigorous audit before investors make a decision on whether to buy the stock.
To list in China requires the approval of the China Securities Regulatory Commission (CSRC). An early test of the leadership’s commitment to reform will be if it lifts a year-long suspension of new listings in Shanghai and Shenzhen.
While the stated reason for the de facto ban was to clean up fraud by forcing underwriters to review the accuracy of IPO applications, it was widely understood to be an effort to prop up the chronically weak stock market by restricting new shares.
Lifting the suspension would be a signal that policymakers are willing to cede more control to markets.
Analysts welcomed the plans, but cautioned they still had to be implemented.
“A policy document, however weighty and well-put-together, does not in itself change anything on the ground,” Capital Economics Ltd economists Mark Williams and Wang Qinwei (王秦偉) said in a research note.
“We have heard the loud call for reform before. It is not just the speed of reform implementation that matters, but the sequencing,” he said.
The government also wants to encourage increased equity financing, which would help wean Chinese firms off their overdependence on bank loans for funding.
Corporate debt in China has exploded since the global financial crisis, and Fitch estimates that the economy-wide debt-to-GDP ratio will reach about 218 percent of GDP by the end of this year, up 87 percentage points since 2008.
In July, the IMF warned similarly rapid debt run-ups have been associated with financial crises in other countries.
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