China's top securities regulator has warned of the problem of overpriced initial public offerings, pledging to weed out overvalued new shares amid stock market reform.
Guo Shuqing, chairman of the China Securities Regulatory Commission, told a seminar that efficient measures would be taken to curb the frothy IPO market in a move to better protect investors.
'Measures must be taken to address the structural pricing problem in the market,' he said, according to a CSRC statement. 'Overpriced IPO shares and speculation on unprofitable stocks are the problems that need to be solved.'
Guo's remarks underscore his determination to slash the sizes of fund-raisings by companies, helping underpin a market that is facing a liquidity drain.
Under the existing IPO mechanism, institutional investors and underwriters set the prices for new shares during price consultations before the general public can participate in the online subscription.
The CSRC has warned institutions and underwriters about artificially setting the prices unreasonably high.
According to people informed by CSRC officials, the regulator began investigations into the pricing processes earlier this year, ordering several institutions to file their research documents with the regulator for detailed scrutiny.
Scrutiny of the internal documents was aimed at checking whether the participants had deliberately elevated prices.
The mainland was the world's largest IPO market in the past two years, but the active fund-raising deals soaked up a massive amount of funds from the existing holdings. Investors also had to lick their wounds after the overvalued shares plunged.
The sources said Guo, a reform-minded technocrat, looked to drive the IPO system to become more market-oriented.
The CSRC would probably let more investors, including individual players, take part in the price consultations to ensure transparency.
Guo also told the seminar that the regulator would curb speculation on unprofitable stocks, a thorny problem in the market that his predecessors were unable to solve.
Mainland investors would flock to small-cap companies, chasing short-term gains regardless of their profitability because it was easy to dart in and out of the stocks.