China’s ‘broker butcher’ vows to tighten IPO rules, curb excesses to restore confidence in US$9.2 trillion stock market

China’s new boss at the CSRC is living up to his tough reputation, issuing four new documents governing IPO market behaviour

Listing committee members have ‘life-long’ responsibility for any malfeasance, corruption in IPO vetting process

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Wu Qing is known as the ‘broker butcher’ for clamping down on stock manipulation when he helmed the Shanghai Stock Exchange from 2016 to 2017. Photo: Reuters

Zhang Shidongin ShanghaiandJiaxing Liin Hong Kong

Published: 6:04pm, 15 Mar 2024Updated: 11:17pm, 15 Mar 2024

China is tightening the screws on new domestic stock offerings, laying out some of the harshest rules, checks and penalties yet to crack down on fake accounting, as a newly appointed regulator dubbed the “broker butcher” strives to weed out malfeasance and revive confidence in the capital market.

The government will control the quality of declarations in companies seeking to raise capital from the public, according to four documents released in one go by the China Securities Regulatory Commission (CSRC) in Beijing on Friday. It will strictly prohibit the “blind pursuit of initial public offerings (IPOs) and the raising of excessive financing for profit,” it added.

Authorities will probe financial fraud, false statements, whitewashing and other types of behaviour to crack down on accounting shenanigans, it said. In other measures, it will impose a regular on-site supervision mechanism, conduct random checks to ensure compliance, and raise the bar on IPOs by companies with profit track records.

The measures come as the market watchdog seeks to improve the quality of IPOs and restore confidence among investors in the US$9.2 trillion stock market, following a three-year market rout through the Covid-19 pandemic and the Lunar New Year in 2024. Beijing has also recently slowed approvals for listings to help contain stock market losses.

Chairman Wu Qing attends a press conference on the sidelines of the National People’s Congress (NPC), in Beijing, China on March 6, 2024. Photo: Reuters

“Fewer new stock offerings mean that liquidity could be channeled into existing listings, which might help to shore up the market,” said Gary Ng, a senior economist at Natixis Hong Kong. It will reduce new deals and hurt bankers further, together with the cap on salaries, he added.

Excessive fundraising and low-quality IPOs have been blamed for the market’s poor performance in recent years. Companies raised US$53.5 billion from first-time stock sales in mainland China last year versus US$5.7 billion in Hong Kong, according to Bloomberg data. The benchmark CSI 300 Index tumbled 11 per cent in 2023.