China to Lift IPO Moratorium

The moratorium on IPOs was put in place in an effort to support embattled equities, and the benchmark Shanghai Composite, which had lost more than 22% of its value in a three year period, rose around 10% while IPOs were on hold. It remains to be seen how the easing of IPO regulations will impact the stock market index.

The current IPO approval process is time consuming and known to favor state-backed enterprises over privately owned small and mid-sized companies. In future companies will be required to meet basic requirements, including high levels of transparency, and the market will be allowed take its course in evaluating viability and the potential for future earnings of newly listed companies. This update on IPO rules is part of the blueprint for reform formulated during last month’s Communist Party meeting.

In addition to addressing social issues ranging from air pollution to land rights to China’s one-child policy, the reform plan includes up to sixty tasks related to economic priorities in the country over the next ten years. The trend will be toward encouraging domestic consumption and innovation, while moving away from an export-driven economy. Investors have welcomed the reform plan, and markets have responded positively. While there are bound to be some hurdles to overcome in implementing the reforms, the general opinion among analysts and investors is that authorities are heading in the right direction for sustaining China’s economic growth.