• The Central Economic Work Conference identifies the ChiNext board of start-up companies as next target for IPO market reforms in 2020
• ChiNext gauge rose 41 per cent in 2019, outpacing gains in broader Shenzhen, Shanghai and Hong Kong benchmarks

China is set to roll out more stock market reforms in the Year of the Rat to better manage market volatility as the nation’s onshore equities gain further recognition from global investors.
Top on the agenda for China Securities Regulatory Commission (CSRC) is the fine-tuning of initial public offering (IPO) pricing system for the ChiNext board in Shenzhen, home to some 800 innovation enterprises, and whose 41 per cent rally last year outpaced the benchmarks in the broader Shenzhen, Shanghai and Hong Kong markets.
The Central Economic Work Conference, which is the Communist Party’s congregation on economic policies, at its last sitting on December 12 requested CSRC to improve the basic market framework and push on with the IPO reforms on the ChiNext board.
Under existing regime, nearly all mainland IPOs are floated at a price of no more than 23 times earnings to ensure post-listing success. That valuation typically ensures a 44 per cent gain for market debutants, only for losses or volatility to follow thereafter.
“The IPO pricing system has been a legacy issue on the mainland stock market for more than two decades, and it looks as if the top regulators are determined to give market forces a full play in pricing IPO shares,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. “A drastic reform to that is advisable.”
Beijing launched the ChiNext board on the Shenzhen exchange to great fanfare in 2009, a culmination of a decade of preparations. It was promoted as a key to encouraging innovation and push Chinese products up the value chain. Massive stock rallies and profit warnings have painted its recent history.
The National People’s Congress, the mainland’s top legislative body, last month endorsed amendments to the nation’s Securities Law, paving the way for a registration-based IPO system. It also removed from the law a clause requiring sustainable profitability at companies seeking to list.
The widening IPO reforms is seen as a step to control volatility at a time when Chinese equities are starting to gain more favour among global fund managers after more of them was added into global indices.