China Sanctions Equity Market Restrictions On Capital Raising

With concerns mounting over growing asset bubbles and the economy overheating, Beijing has attempted to rein in the flood of capital into the equity markets by regulating IPOs. Under the newly tightened rules, Chinese securities regulators have the power of veto on all IPO applications and are also empowered to intervene in their pricing. In fact, 34 companies have already said that they have had their private placement or secondary offering plans vetoed by regulators. However, it is important to remember that overpriced listing valuations and the glut of public listings seen since the middle of 2009 are only a symptom of the problem, and not the cause. The move to restrict IPOs and secondary issuance by publicly-listed companies in the equity market echoes a move last month to curb bank lending, after loans issued in the first two weeks of 2010 spiralled to CNY1,100bn (US$161bn). It is the view of BMI 's Asia desk that a serious correction is already underway. Given this view, CFW questions: is it 'too little, too late'?

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