China is boosting support for IPOs as investors keep an eye on approval speed

Chinese authorities recently announced a new policy to support venture capital in an effort to revitalize the slowing investment capital and startup ecosystem in China. The State Council published measures aimed at promoting the high-quality development of venture capital, signaling a recognition of the need for improvement in the industry. The focus is on accelerating the approval process for initial public offerings (IPOs) and expanding exit channels for venture capital investors.

The move is seen as a positive step by industry experts like Marcia Ellis, who believes that venture capital can be a driving force in China’s tech market, potentially boosting its competitiveness against the U.S. Ellis emphasized the importance of clear exit paths for investors, which have been lacking in China recently. The new policy also aims to support companies with technological breakthroughs and streamline overseas listings and fund exits not denominated in yuan.

However, challenges remain for overseas IPOs as both Chinese and U.S. authorities have tightened scrutiny on listings. The introduction of new regulations following incidents like Didi’s U.S. listing in 2021 suggests a more cautious approach to overseas IPOs. Morrison Foerster’s Ellis warns against non-professional investors entering the venture capital market, as it could lead to damaging outcomes. The China Securities Regulatory Commission has also increased fines for misleading investors and clarified requirements for overseas IPOs to ensure compliance with national security measures.

On the domestic front, China has been focusing on developing its stock markets, which are relatively young compared to other markets. The country’s securities regulator has expressed the importance of increasing targeted support for businesses in line with China’s technological development efforts. While this could potentially lead to more diverse IPO candidates, the standards for listing remain high, potentially keeping IPO volumes low in the near term. The CSRC has also shown support for mainland Chinese companies looking to list overseas, especially in Hong Kong.

In addition to supporting domestic markets, China is also looking to attract international investment institutions to establish yuan-denominated funds. This move could open up new opportunities for foreign funds interested in investing in China. Ellis notes that there is a significant interest in China-focused funds, but raising USD for such investments has become increasingly challenging. By facilitating the establishment of RMB funds, China aims to attract more foreign investment and support the growth of its domestic markets.