Experts say measures target concept speculation, use of shell companies
The China Securities Regulatory Commission (CSRC) may take steps to stop market bubbles from forming by halting approvals for private placements in certain industries and reining in backdoor listings, experts said Wednesday.
The regulator's goal is to ensure that capital goes into the real economy, the experts said.
The CSRC has barred companies in traditional sectors from conducting private placements in "virtual sectors," a move that might prevent a cement producer, say, from investing in such industries as Internet finance, gaming, film or virtual reality (VR), Beijing-based financial news website caixin.com reported Wednesday.
Caixin.com said in such cases, these emerging industries are not related to the company's "core business."
"If the company ventures into a territory beyond its main business, sometimes it will use merger and acquisition (M&A) deals to speculate on certain 'concepts,' which will jeopardize investors' interests," an unidentified source close to the regulator told the website.
The CSRC is likely to announce tougher measures to tackle market bubbles, which have raised concerns in recent years, experts told the Global Times on Wednesday.
Speculation on "concept stocks" has been common in China for years, but the practice became especially worrisome last year, said one expert.
For example, some companies used the nation's "Internet Plus" strategy to achieve high market valuations, which also affected their returns and trading volume, noted Huang Jianzhong, a finance professor at Shanghai Normal University.
"It's a way of manipulating share prices that definitely bears watching," Huang told the Global Times on Wednesday.
There have been an increasing number of M&A deals between traditional listed companies and companies in emerging industries.
Zhejiang Dilong New Material Co spent 3.4 billion yuan ($522.4 million) buying a gaming company in 2015, and Lingnan Landscape Co, which is in environmental services, tapped into the culture and VR industries starting in 2015 by purchasing two companies for 375 million yuan and 550 million yuan, respectively, according to media reports.
The CSRC wants to ensure that money raised in the capital market actually contributes to the traditional industries, which are being affected by the economic slowdown, Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Wednesday.
Also, with more U.S.-listed Chinese companies intending to go private and then list in the A-share market, there are concerns about the increasing overvaluation of the shell companies they'll use to do so, Dong noted.
The market valuation of shell companies is estimated at 3 billion yuan on average, domestic financial news portal hexun.com noted on Monday.
"It's common that those companies will go public through M&A deals, in other words, by looking for shell companies to enter the market, which is faster than waiting for IPOs," he said.
The nation's IPO reform, which involves a shift from approval-based IPOs to registration-based ones, was expected to find an efficient way to resolve the funding difficulties, Dong noted.
"However, the suspension of the reform has made the waiting time even longer for companies," he said.
The CRSC has blocked moves by U.S.-listed companies to use backdoor listings to join the A-share market, media reports said, and it said in a press conference held on Friday that it will study thoroughly the impact of these listings, according to its website.
"Compared with the U.S. stock market, the average valuation for those companies on the A-share market is relatively higher, and the regulations are much looser, which help generate speculative moves," Dong said.
