Xi backs reforms of ChiNext's IPO system

China on Monday kicked off a reform to fast track initial public offerings on Shenzhen’s startup board ChiNext to deepen capital market reforms.

The scheme to launch a registration-based IPO system on ChiNext was approved during a meeting overseen by President Xi Jinping, who stressed the need to counter economic headwinds with structural reforms. China is stepping up efforts to channel much-needed capital into coronavirus-hit companies and innovative startups.

Reforming the ChiNext is a key step toward building “a disciplined, transparent, open, vibrant, and resilient capital market,” according to a statement released after the meeting. It did not give a timeline for the new system to be adopted.

China first introduced the registration-based IPO system in Shanghai’s Nasdaq-style STAR Market, launched last July, and plans to replicate the board’s success in other markets.

Under the new listing mechanism, companies seeking an IPO no longer need approval from the China Securities Regulatory Commission, greatly shortening the waiting period.

Instead, the stock exchange will vet ChiNext IPO applications based on disclosure rules, expected to be revamped under the new mechanism. The market will decide on the pricing and timing of new share sales.

Once the reforms take effect, there will be no up and down limit for the first five days after a company lists on the stock exchange. After that, the up and down limit will be adjusted to 20 percent from the current 10 percent level.

Experts predict that ChiNext could see its first initial public offering under the registration-based system later this year.

The reform also included a series of specific rules in the areas of ongoing disclosure, corporate governance, equity-based incentives and reduction of holding stocks.

A streamlined listing process would make China’s IPO market more attractive to tech startups. ChiNext, launched roughly a decade ago, is currently home to 807 companies with total market capitalization of 6.78 trillion yuan (US$958 billion).

The meeting also highlighted the timely measures taken to cover the medical fees of COVID-19 patients and called for building a preventive mechanism for a healthcare fund that features all areas and all procedures for “the sustainable development of China’s healthcare system.” Officials urged the improvement of the ability to gather medical supplies and resources in time of public health emergencies like the COVID-19 outbreak.