Chinese Securities Regulator's Bid to Bolster A-Share Market Backfires
Wang Siqi
/SOURCE : Yicai
Chinese Securities Regulator's Bid to Bolster A-Share Market Backfires

(Yicai Global) June 6 -- The China Securities Regulatory Commission (CSRC) recently introduced new policies regarding the dumping of publicly listed companies' shares in a bid to bolster the A-share market. The move backfired and has adversely affected firms backing high-tech startups.

After extending the lock-up period for major shareholders of listed firms, the commission issued a set of supplementary rules last Friday and reduced the lock-up period to one year for qualifying VC funds.

The CSRC intended to encourage private equity funds to focus on tech startups, instead of investing in pre-IPO (initial public offering) companies and cashing in on price disparities between the primary and secondary markets, a market insider told Yicai Global.

Some 2,421 Chinese private equity funds were registered as VC pools, per Asset Management Association of China statistics. Another 15,880 funds will have their lock-up periods extended to three years.

These ineligible funds will face more risks. "The extended lock-up period means reduced liquidity and return on investment, making it difficult for the funds to raise money," said Chen Wei, business director at Z-Park Association of Internet Finance.

Some industry experts believe that as implementation rules are still unavailable, the market will take some time to digest the new policies. The new regulations will draw attention to small to medium-sized startups with excellent growth potential, they said. "Most investors were only interested in firms at an advanced stage of development and paid little attention to high-potential startups in an early development stage," said Gao Hongqing, managing director at Fortune Capital.

The A-share market is no longer a suitable public funding venue for Chinese startups worth more than USD14.7 million (CNY100 million). "They have no reason to seek an IPO in China, because they're more suitable for mature stock markets abroad, as dictated by their investors and business models," Chen said.

 

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Keywords: Venture Capital , Financial Regulation , CSRC , A-Share , IPO , Shareholding Reduction