China sets new IPO reforms

China's securities regulator has issued a reform plan for initial public offerings, as the government prepares to lift a more than one-year freeze on new listings in the world's second-biggest economy.

About 50 companies are expected to complete the IPO approval preparations and list or be ready to do so by the end of January, the China Securities Regulatory Commission said in a statement at the weekend. There are more than 760 companies in the queue for approval and it will take about a year to complete an audit of all the applications, the regulator said.

China, the world's largest IPO market in 2010, with a record $US71 billion raised, has not had an initial public offering since October 2012 as the CSRC cracked down on fraud and misconduct among advisers and companies. Communist Party leaders pledged last month to change the IPO system as part of a package of reforms that signalled the biggest expansion of economic freedoms since at least the 1990s.

"This is positive for the long-term development of the market as both companies and stock investors will gradually have more choice under the new policy," said He Zongyan, an analyst at Shenyin & Wanguo Securities Co in Shanghai. "It may add downward pressure on the stockmarket in the short term as 50 new IPOs in the next few months may drain capital and force a correction in some inflated stocks."

The regulator stopped reviewing applications for listing on the country's stock exchanges in Shanghai and Shenzhen amid concern that a flood of new shares could hurt investor confidence.

Xiao Gang, a former central banker and Bank of China chairman who was named head of the CSRC in March, said last month the shift to a looser IPO system must be gradual to avoid shocks to the market.

China's benchmark Shanghai Composite Index has dropped 2.1 per cent this year and the CSI300 Index has fallen 3.3 per cent, the worst performers among 20 primary equity indexes in Asia and the Pacific tracked by Bloomberg.

In a separate statement, the CSRC said it would draft rules for a trial to allow companies to sell preferred stock, based on guidance issued on Saturday by the State Council, and seek public feedback on its proposals.

The use of preference shares would help deepen corporate reform, provide a flexible financing tool for companies and promote the stable development of the capital market, the State Council, China's cabinet led by Premier Li Keqiang, said in guidelines issued on the central government website.

Banks would be able to include preference shares in calculations of their tier-one capital, giving them a new financing instrument to meet capital requirements of the Basel Committee on Banking Supervision, CSRC spokesman Deng Ge said in the statement. Preference shares would also help reduce corporate debt levels, Mr Deng said.

The CSRC's announcements build on reform pledges made in a 60-point document released by the Communist Party on November 15 after its top leaders met to map out policy changes for the coming decade. They vowed to give markets a bigger role in the economy and reduce government interference.

Under current rules for domestic IPOs, companies go through a review and approval system, where a CSRC committee has the sole discretion to decide whether a company is fit for listing. The process can take years.

In the new system, the regulator will be responsible only for examining whether applicants are qualified, leaving investors and the markets to make their own judgment about a company's value and the risks of buying its shares.

"We want to emphasise that the market should not see the registration system as a sign that the government won't supervise and regulate the market any more," an unidentified CSRC official said.