Market-Oriented Reform of China’s IPO System and Information Disclosure Regulations

Reform of the issuance system of new shares is at the core of China’s stock market development. The reform can enhance issuance efficiency, strengthen price discovery for stocks, optimize resource allocation and is of great significance for the sound development and further improvement of the stock market. China’s IPO system, plagued with inherent flaws, has always been controversial; but it keeps evolving and improving. This chapter discusses reform and evolution of China’s IPO system from three perspectives: The regulatory system, issuance procedures, and pricing methods. Based on discussion and analyses, it concludes that China’s IPO system should graduate from an administrative approach to a market and law-based one. This is based on both theoretical logic and market realities. This chapter also conducts case studies of China’s IPO practice, and 1,351 listed company that have undertaken IPOs between 1992 and 2007 are used as samples to discuss how market-oriented reform of the IPO system influences pricing efficiency. According to the case studies, China’s IPO system reform has given underwriters more choices and more pricing power, thus curbing excessive underpricing and enhancing the long-term performance of IPO companies. This chapter also points out that the most prominent problem during issuance of new shares is information disclosure noncompliance. Taking Yunnan Greenland Biological Technology Co., LTD and Wanfu Biotechnology as examples, this chapter analyzes problems in China’s IPO information disclosure regulatory system.