A wave of fast flowing reforms may raise the levels of capital market fluidity in China, but players must navigate the undercurrents, writes Richard Li

The tide raises all ships, as an old saying goes, and China’s markets are witnessing a rising swell of reform bringing stronger inflows and outflows of capital – a tide being keenly observed at home and from abroad.

Along with the resumption of the long-suspended initial public offering (IPO) market, the change from the current approval system to a registration regime for issuing new shares is now a critical issue in the domestic capital market.

The simplified procedure and requirements may attract more companies to bring in money through IPOs, but at the same time they need to shoulder more responsibilities regarding information disclosure. The regulator is leaving investors to make their own judgments here, so the authority is showing lower tolerance for false or misleading information.

Still high on the agenda of the central government is strengthening the multi-level capital market structure in China, proof of which is in recent efforts to develop the New Third Board.

And of course there’s big interest in China’s opening its securities reservoir to foreign money. The schemes of qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) have continued to expand and now apply to more types of investors. In January this year, Ashmore Group became the first investment institution outside Hong Kong to be granted RQFII status and a quota to invest directly in China’s securities market.

Chinese companies’ strong thirst for financing has not been quenched by domestic money alone, and both Hong Kong and the US have seen IPO activity in recent months.

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