The mainland's controversial initial public offering (IPO) system will probably go through another round of refurbishment more than three years after its last overhaul.
This means there will be a reasonable spell of limbo as the regulator hones its tactics to deal with a flood of listing applicants and a slump in the market.
The China Securities Regulatory Commission (CSRC) has suspended IPO approvals for two months and is set to extend the ban on new share offerings until at least February as it faces an uphill battle to underpin the weak market.
The months-long ban follows a nine-month hiatus between September 2008 and June 2009 when the regulator halted IPO approvals to stem a market slide.
It made no official comment on the latest move last week, but an official, speaking on condition of anonymity, said the suspension could last for a while due to the weak market.
"Indeed, the regulator has no clear-cut plans on how long the IPO ban would last," the official said. "The key point now is how to adjust the policies to solve the problem."
The benchmark Shanghai Composite Index has declined 6.4 per cent so far this year, following a 14.3 per cent drop in 2010 and a 21.7 per cent fall last year. A flood of frothy initial share offerings were blamed for the sharp fall as they drained liquidity from the market.
There are more than 800 IPO applicants waiting for the go-ahead from the CSRC to raise funds, but investment bankers said they were told that the IPO market would not reopen until the Lunar New Year, which is on February 10.
However, investment bankers had high expectations that new IPOs would be allowed after the Lunar New Year.
"All companies will have to file their 2012 earnings before going through the review procedure and the preparations for the earnings reports will take some time," said Ding Ke, chief executive of Huaying Securities.
"The companies will also gauge the market conditions to see whether they can sell their shares at a satisfactory price."
According to the regulatory official and sources close to the CSRC, the chief regulator is under heavy pressure to work out a plan to handle the thorny IPO issue.
On the market, the 800 IPO applicants in the queue are described as a "quake lake" phenomenon since analysts believe the move to temporarily curb fund-raising activities will, in the longer term, create a more serious problem when the regulator lifts the ban.
For the moment, the CSRC is reluctant to approve new share offerings because of worries that fresh equity supply could exacerbate the bearish market. But it will eventually be forced to lift the ban because a stock market cannot permanently reject fund-raising activities.
"The more IPOs it holds up temporarily, the worse the liquidity problem that will arise when the suspension ends," said Haitong Securities analyst Zhang Qi.
Sources said the regulator would direct a certain number of IPO applicants to the over-the-counter (OTC) market, also known as the "third board".
"It doesn't seem likely that the regulator could successfully reform the IPO system," said Zhang. "The market has long been a place for companies to raise funds while investors lose money."
The state-owned China Securities Journal has reported that the regulator was also considering introducing warrants in the IPO system to protect investors.
Warrant holders can sell shares to the issuer at a certain price in three years, according to the report. This would ensure that investors would not suffer heavy losses.
But investment bankers said the reform measure would not be implemented in the near future.
After it lifted its previous IPO ban in June 2009, the CSRC gave companies and underwriters a bigger say in pricing the new shares, but it was a flop.
A large number of IPO issuers set their prices very high, leaving investors to carry the can after the shares began trading and fell heavily.
The investors were burnt because they took it for granted that the new shares would be profitable investments.
Before then, share prices were required by the regulator to be set at artificially low prices to facilitate the fund-raisings.