China's comprehensive registration system reform has far-reaching impact
Author: Luo Zhiheng
Published in the 1081st issue of "China News Weekly" magazine on February 27, 2023
Recently, the China Securities Regulatory Commission issued the relevant system rules for the full implementation of the stock issuance registration system, marking a new stage in the reform of the registration system with "Chinese characteristics".
On the whole, the comprehensive registration system reform is a systematic optimization of the whole market system, which not only involves the issuance review system, but also includes listing, trading, refinancing and other systems.
The essence of the reform of the comprehensive registration system is to "delegate supervision to the market", hand over the right to choose to the market, and strengthen market constraints and legal constraints.
Some shortcomings of the approval system not only caused some high-growth and unprofitable technological innovation companies to leave overseas, domestic investors missed the opportunity to share their growth dividends, but also caused the high value of shell resources. .
Under the comprehensive registration system, the entire market adopts a unified structure of "exchange review and CSRC registration", the review subject is transformed into the exchange, and the review standard is transformed from substantive requirements such as continuous profitability to information disclosure requirements, and the registration process will be more convenient , the efficiency of issuance and examination will be greatly improved.
The focus of the reform is the main board of Shanghai and Shenzhen. The main contents include: In terms of listing standards, the main board has added a market value indicator, changing the original single pure financial standard into "sustained profit + cash flow or income" and "market value of 5 billion yuan + profit + income + The three sets of standards of "cash flow" and "market value of 8 billion yuan + profit + income" have further improved inclusiveness.
At the same time, listing channels for red-chip companies and companies with differentiated voting rights have been added, and restrictions on the proportion of intangible assets have been removed, making it more friendly to companies with more goodwill after mergers and acquisitions.
In terms of issue pricing, restrictions on issue pricing such as 23 times the price-earnings ratio have been removed.
In terms of trading mechanism, there is no price limit for new shares listed on the main board for five trading days before listing, and new shares can be included in margin trading and securities lending targets on the first day of listing.
In terms of refinancing, the simple issuance method has been added. For projects with a financing amount of no more than 300 million yuan and no more than 20% of the net assets in the past year, the simple procedure of "small and fast" financing can be adopted.
The future direction of the reform is the "two-way smooth flow" of import and export in the market.
Overseas experience shows that the reform of the registration system is a full-chain reform, a reform of "combining decentralization and management". While relaxing the conditions for issuance and review, it will inevitably be accompanied by a shift in the focus of supervision, and in-process supervision and ex-post punishment will be further strengthened.
In particular, the delisting system needs to be closely coordinated with the registration and issuance system. While encouraging high-quality companies in emerging industries to go public, the delisting of poor-performing stocks and theme stocks should be accelerated.
At present, the number of delisted companies in China is increasing year by year, but there is still a gap compared with overseas developed markets.
The ratio of the number of companies delisted in the U.S. stock market in one year is about 6%.
The comprehensive registration system reform has a far-reaching impact on China's economy.
At the macroeconomic level, the comprehensive registration system will help promote innovation and development, accelerate industrial transformation and upgrading, and improve macroeconomic governance.
The reform of the registration system has optimized the conditions for initial public offering and refinancing, making it easier for technological innovation companies to go public, thereby improving their share circulation and financing efficiency.
This is conducive to making better use of the risk-sharing and benefit-sharing mechanism of the capital market, stimulating the innovation vitality of market players, and ultimately promoting self-reliance and self-improvement in science and technology, and solving problems such as "stuck necks".
At the same time, the comprehensive registration system will accelerate the increase in the proportion of direct financing, reduce the macro leverage ratio, reduce systemic risks caused by excessive accumulation of funds in banks, and improve macroeconomic governance.
At the capital market level, the comprehensive registration system will increase the number of listed companies in the short term, accelerate valuation differentiation and the natural clearing of the market; in the long run, it will steadily improve the quality of listed companies and foster the soil for value investment.
First, the registration system will accelerate market expansion, but the China Securities Regulatory Commission clearly emphasizes: "Implementing the registration system does not mean relaxing quality requirements, and it does not mean that anyone wants to send it out." Therefore, the overall expansion speed is relatively controllable, and it is also in line with the implementation of the Chinese system. Consistently adopted the tone of "seeking progress while maintaining stability".
This means that although market expansion under the registration system will have a "pumping effect" on the market, the extent is limited.
The second is that valuation and liquidity will accelerate differentiation. Under the comprehensive registration system, listing resources will no longer be scarce, and the value of the shell will also shrink significantly.
For enterprises, only enterprises with real high growth potential can achieve continuous improvement in market value and accelerate the accumulation of liquidity.
However, companies whose valuations continue to decline may face delisting indicators triggered by transactions that are sluggish, and will be liquidated at an accelerated rate.
Third, the function of survival of the fittest in the long-term market will accelerate. Under the dynamic balance of advance and retreat, A-shares are expected to usher in a real "slow bull" and "long bull" market.
At the micro entity level, the comprehensive registration system will enrich the listing options and financing methods of enterprises; accelerate the transformation of investors and optimize the asset allocation of residents; and force the business transformation and upgrading of securities companies.
First of all, under the comprehensive registration system, enterprises in different industries and at different life stages will find fertile soil for their rooted development in suitable capital market sectors.
Enterprises with mature models and strong profitability but weak technological innovation attributes are more suitable for listing on the main board; unprofitable but high-growth enterprises are more suitable for dual innovation and innovation boards; innovative and entrepreneurial small and medium-sized enterprises are more suitable for cultivating norms at the innovation layer, and finally listed on the Beijing Stock Exchange .
Secondly, the implementation of the comprehensive registration system will inevitably be accompanied by the normalization of IPOs, and the substantial increase in the number of assets will increase the investment difficulty of individual investors, forcing them to make value investments through professional institutions, and accelerate the structural transformation of market investors.
At the same time, the accelerated inflow of long-term funds and the continuous enrichment of investment tools such as indexed products will also help increase the proportion of residents' property income.
Finally, the expansion of the market has broadened the scope of securities companies' investment banking business; the optimization of systems such as co-investment mechanisms and margin financing and securities lending has also increased the volume of securities companies' capital-driven businesses.
However, the registration system also puts higher requirements on the research capabilities, valuation and pricing capabilities, and risk management capabilities of securities firms, forcing them to transform and upgrade their businesses.
(The author is Chief Economist and Dean of Research Institute of Yuekai Securities)
"China News Weekly" Issue 7, 2023
Statement: The publication of the manuscript of "China News Weekly" must be authorized in writing