As part of the follow-up measures to help small and micro businesses out of their financing troubles, Beijing decided on Nov 19 to usher in a range of initiatives eliminating unnecessary entry thresholds for credit, interest and stock offerings.
Amid looming concerns over the downward pressure clouding the Chinese economy, observers have placed high hopes on more tangible policies that may boost the real economy and ensure the unfolding of structural reforms.
Reform of China’s IPO issuance mechanism was high-lighted at an executive meeting of the State Council chaired by Premier Li Keqiang on Wednesday, with members deciding that the reform plan for registration-based IPO issuance “should be formulated at an early date”.
IPO prerequisites on sustained profitability will be scrapped, while the IPO thresholds for small and micro businesses, as well as innovation-oriented enterprises, “should be lowered,” the members said.
The existing approval-based system can require multiple rounds of reviews and several years before investors receive approval from securities regulators.
Under the new registration-based IPO system, China’s securities regulators would only be responsible for deciding whether companies fulfill the rules, observers said.
The executive members also pledged to use the securitization of credit assets and simplify the financial bond issuing procedures for small and micro businesses, as well as farmers and agriculture, according to a statement released on Nov 19.
Xu Hongcai, a senior economist at the China Center for International Economic Cooperation, said China should enrich fundraising channels by developing multilayer capital markets to allow companies to gain wider access to capital.
“Innovation in the trading system of markets such as the over-the-counter market and the Nasdaq-style board of growth enterprises will help unleash the potential of Chinese capital markets,” Xu said.
During a State Council meeting in July, Li pledged to take various steps to give more financing support to the real economy while keeping credit growth at a proper level.
To ease financing costs, the meeting in July outlined 10 measures that put the focus on optimizing credit structure against the backdrop of a prudent monetary policy and reasonable credit growth.
Members at the meeting on Nov 19 called for faster development of privately owned banks, stronger grassroots financial support for small and micro businesses, expansion of the piloting of small loan guarantee insurance and elimination of unreasonable high loan interest and toll fees in the banking sector.
Challenges in financing loom large when it comes to small and micro businesses, as many of the mare from the service sector, and their lack of real assets reduces their hopes for more funding, according to He Fan, a senior economics research fellow at the Chinese Academy of Social Sciences.