IPO reform planned

China's securities regulator is studying measures to reform the system for initial public offerings (IPOs), with the problem of overpricing likely to be a key consideration, analysts said Monday.

Chinese IPOs tend to be overpriced in the primary market, which can lead to losses in the secondary market, and the regulator will take measures to monitor and regulate the pricing system, Zhu Congjiu, assistant to the chairman of the China Securities Regulatory Commission (CSRC), was quoted as saying by China Securities Journal Monday.

One way to contain overpricing would be to increase access to new shares for institutional investors, he said.

"By keeping the opening price true, the price gap between the primary and secondary market will be smaller," Li Daxiao, director of research with Yingda Securities, told the Global Times Monday.

Li said the new emphasis on reforming the IPO system by the country's top leaders could boost the stock market, which performed poorly last year.

At the National Financial Work Conference concluded Saturday, Premier Wen Jiabao pledged to improve the systems surrounding IPO launches, as well as delisting, and dividend allocations.

Wen also vowed to reinforce supervision of the stock market and promote the healthy development of the primary and secondary markets.

Li from Yingda Securities noted that as well as the measures Zhu mentioned, another method would be to lengthen the period between subscribing for shares and listing company on the stock market.

"If the period was lengthened, investors would be much more cautious, rather than blindly subscribing to buy shares without considering the financial risks," Li said.

Tu Chunhui, general manager of the research department at China Development Bank Securities, Monday told the Global Times that regulations for the underwriters should also be tightened.

Some companies which plan to get listed exaggerate their status and potential, and some underwriters help to conceal the companies' real business performance, thus misleading investors, according to Tu, who also said the underwriters are sometimes connected via an affiliated firm to the companies seeking a listing.

"This obviously affects their judgment and taints their impartiality," Tu explained.

The underwriters need to improve their research and price-setting ability, as well as expressing their true intentions clearly in the book-building process, Tu noted.

More than three years after Yunnan Green-Land Biological Technology got listed in December 2007, the CSRC finally confirmed on March 21, 2011 that the company had fraudulently misreported its assets, income and profits before its IPO. The investigation found that the company had intentionally inflated its profits with business revenues based on faked orders.