The China Securities Regulatory Commission (CSRC) is intensifying its scrutiny of companies seeking initial public offerings (IPOs).
The increased inspections aim to strengthen the secondary markets and slow the pace of new fundraisings. Regulatory actions, such as seizing mobile phones and laptops from senior executives, have led to a rise in IPO withdrawals.
In April, the CSRC announced it would inspect 20% of IPO applicants in 2024, up from its previous target. This move follows tighter regulations introduced in March, which are intended to favor top-tier firms preferred by the Beijing government.
The major stock exchanges in Shenzhen and Shanghai have not accepted any IPO applications this year.
Data indicates that over 130 Chinese IPO candidates have canceled their plans in 2024. For instance, Swiss agrochemical giant Syngenta withdrew a $9 billion offering in Shanghai.
While China’s domestic benchmark index has risen by 7% this year, total IPO funds have dropped nearly 90% to $2.6 billion in the first four months, marking the lowest level since 2013.
The CSRC and local stock exchange officials are now routinely visiting IPO applicants’ offices to review their business and personal documents to assess their financial health and governance.
Underwriters for IPOs must also be present and prepared to answer questions from regulators and exchanges, increasing the risk of involvement in regulatory issues. In some cases, bankers have had to surrender their computers and mobile devices, facing potential exclusion from IPOs or even job losses.
In February, the CSRC fined Shanghai semiconductor company S2C for fraud in its listing application, even though the company had canceled its IPO plans in July 2022.
These stringent measures have significantly impacted investment banks and professional services firms, with equity-related underwriting fees falling by 77% to $301 million last quarter compared to a year earlier—the lowest level since 2009.
