China Securities Regulatory Commission Suspends Chinese Share Offerings
BEIJING, Oct. 10 – In an attempt to boost already battered stocks, China’s financial regulatory body, the China Securities Regulatory Commission, has ceased reviewing applications for Chinese initial public offerings.
Beijing has been attempting to boost the market in a number of ways, and over the past few months has cut stamp duties, limited the sell down of previously non-tradable, usually government-owned, stocks, and has been encouraging listed State-owned enterprises to increase their own shareholdings. Much of these efforts however have been undone in the wake of the global financial crisis.
The CSRC has taken this action before. During 2005 and 2006 the CSRC refused all IPO applications for a full twelve months, recommencing only in May 2006. Since then, offerings have been approved at a rate of about ten a week. The new move will affect about 35 mainland companies that have gone through the approvals processes but have yet to begin their share sales as CSRC regulations state they must provide share offerings within six months of regulatory approval. Chinese brokerages are expected to feel the pinch as they have already been hit by a shrinking market and losses on proprietary trading.
While stocks in Hong Kong, Singapore, Seoul and Bangkok climbed higher yesterday in response to global banks cutting interest rates, Shanghai dropped a further 0.84 percent. The Shanghai Composite Index is down over 60 percent this year.
In other financial related news, the International Monetary Authority commented yesterday that the Chinese RMB was “still substantially undervalued,” stating that a more flexible approach to its exchange rate would help China shift its momentum towards domestic consumption and growth and away from dependence on exports. That echoes comments made by mainland policy makers that China needs to boost its domestic consumption to offset a downturn in exports.
China however is currently evaluating the potential domestic fall out from this as many factories, especially in Guangdong and the Yangtze River Delta are already feeling the pinch from a downturn amidst very low margins. A move to strengthen the RMB could push many of them into laying off workers or closing, leading to potential social unrest, especially if this occurs during the freezing winter months. China will be balancing the management of this problem against a move to boost domestic consumer spending.
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