China plans registration-based system for stock market flotations

An investor's bottle with a communist party symbol stands in between computers showing stock information, at a brokerage house in Shanghai, China, July 22, 2015. REUTERS/Aly Song

BEIJING (Reuters) - China plans to shift to a U.S.-style registration system for stock market flotations on the Shanghai and Shenzhen exchanges within two years, the cabinet said on Wednesday.

The State Council is awaiting approval from the National People’s Congress, or parliament, on its proposal to launch the long-planned reforms, the cabinet said in a statement after a regular meeting chaired by Premier Li Keqiang.

Relevant government agencies will draft detailed rules that will be implemented after seeking pubic feedback, according to the statement posted on the central government website.

The authorities will also step up supervision on listed companies and protect investors’ legitimate rights and interests, it added.

Sources told Reuters earlier this month that China is ready to announce plans for a migration to a registration-based system for flotations, or initial public offerings (IPOs), in the near term.

The China Securities Regulatory Commission (CSRC) watchdog began speaking of moving away from its current approval-based system, seen as distorting the IPO market and encouraging official corruption, to a registration system, where the market decides who gets to list and for how much, since early in 2014.

But the stock market crash this summer, blamed in part on an IPO glut, put that process on hold, as the CSRC froze listings to stabilize a market that lost as much as 40 percent in just a few weeks.

The CSRC said in a statement it would take steps to improve market transparency and crack down on illegal activities to support the IPO reform, adding it would implement the reforms in a gradual and steady manner to prevent a sharp expansion in new share listings.

The cabinet also pledged to take steps to tackle excess factory capacity and deal with so-called zombie firms, while allowing banks to write off more bad loans, state radio said.

Reporting by China Monitoring Team and Kevin Yao; Editing by Robert Birsel and David Holmes