China IPOs return, but market challenges still loom

China’s securities regulator, the China Securities Regulatory Commission has given the go-ahead for the resumption of initial public offerings in China by approving the IPOs of five companies that seek to raise approximately US$350 million.

China’s securities regulator, the China Securities Regulatory Commission (CSRC), has given the go-ahead for the resumption of initial public offerings in China by approving the IPOs of five companies that seek to raise approximately US$350 million.

Listings on the Chinese stock markets were suspended by authorities in August 2012 as a response to difficult trading conditions on China’s markets. Since then there have not been any IPOs allowed on the Shanghai or Shenzhen markets.

That suspension left a line of 800 companies waiting to float. Chinese firms could also not simply list overseas. They could only apply to do so if they possessed ‘red chip’ status with an offshore holding structure, but since 2006 Chinese businesses have not been allowed set up a red chip just for the purposes of an IPO. 

“I think the resumption of IPOs is not necessarily negative as long as they are attractively priced and are good quality companies,” says Francis Cheung, the head of China/Hong Kong Strategy at CLSA in Hong Kong.

Neway Valve (Suzhou) Co. is one of those that has already received approval for an IPO on the Shanghai Exchange. Seeking to list on the Shenzhen Exchange are Truking Technology Ltd., Guangdong Qtone Education Co., Guangdong Xinbao Electrical Appliances Holdings Co. and Zhejiang Wolwo Bio-Pharmaceutical Co.

“The bigger worry is reforms and the impact to economy,” added Cheung. “If reforms cause a short-term impact to growth despite being positive in the long-term, the market will see pressure.”

In 2013, China’s stock markets were the weakest in Asia, with the Shanghai index falling by 6.75%. The downward impetus has continued into 2014 and investors have concerns about a liquidity squeeze together with doubts over the sustainability of China’s investment-led GDP growth.

Chinese media has conjectured that 50 companies could complete listing preparations by the end of this month, and PricewaterhouseCoopers estimates that 300 firms could complete IPOs by the end of this year, raising US$41 billion.

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