Fri, Jan 17, 2014

http://www.forbes.com/sites/russellflannery/2014/01/17/restart-of-ipo-listings-a-good-signal-for-chinas-economy/

China’s restart of new listings on its stock market today after a 15-month halt is a hopeful sign for businesses here that the central government will follow up on the broad promises for market-focused reform it has been sounding in the past several weeks.

Though intended to aid the market, the suspension of new listings hurt investor choice, and led to distorted prices and bloated PE ratios among companies with healthy underlying business.  The fallout from that artificially constrained supply spilled all of the way over to the 2013 Forbes China Rich List, where a number of new billionaire fortunes were created on the back of lofty PE multiples.  We identified 168 billionaires last September compared with 113 the year before.

China’s IPO shutdown also harmed fundraising by private-sector businesses that as a group have been an engine for job and economic growth.  State-owned companies such as Chinese Petrochem National Corp., the parent company of U.S.-listed PetroChina PTR -0.28%, have been dogged by suggestions of corruption, and frequently underperform the private sector.  Authorities last year replaced state asset regulatory chief Jiang Jiemin in a probe into wrongdoing.

To be sure, problems continue to dog China’s IPO underwriting process, and allowing 40+ IPOs early this year in a short period as now planned may ultimately make as little sense as shutting the IPO market down for more than a year did.

Yet the first new listing, Neway Value (Suzhou) got off to a good start today, rising 43%.  That will likely be part of what global financial consultant EY predicts will be a record year for IPOs in Greater China.

Though there will almost certainly be problems in the future, China is wise to move back toward capital-market liberalization that has on the whole served its economy and businesses well.  The country may have a full plate of economic needs – some conflicting badly, yet nurturing the next-generation entrepreneurial successes that have been achieved by the likes of Baidu and Alibaba in the past decade is surely in its own national interest.  What would help next is more rigorous policing and punishment of market abuses, followed also by easier rules for foreign investment in its shares.