China intends to roll back curbs on private share placements

China is on the verge of rolling back curbs on private share placements by businesses with the aim of improving their access to funding within the initiative to reduce strains on the country’s businesses and the domestic economy.

In fact, the curbs were put in place by watchdogs two years ago in the face of worries about abuse by businesses and traders as well as a lack of transparency on such share sales that were below the stock's last openly traded value.

Additionally, the China Securities and Regulatory Commission is working on amendments to the regulations, including limits on the sale of stocks purchased via private placements as well as the mechanism for pricing stocks in private offerings.

In China, private placements rallied five-fold to $172 billion, dodging watchdogs’ controls on initial public offerings and also boosting worries that businesses were raising too much funds for speculative or inefficient purposes.

It backed fresh rules from the CSRC in 2017 restricting the size of such fundraisings to just 20% of a firm’s capitalization, which requires an 18-month gap in between private offerings, and without some sectors altogether.

Nevertheless, the clampdown on private placements meant a great number of businesses had to turn to ramping up debt instead, contributing to the sizeable corporate debt burden in the world’s number two economy.

A long-lasting regulatory clampdown on riskier types of financing as well as debt restricted many businesses’ access to financing in 2018, resulting in the biggest-ever year for onshore defaults and also a steep tail-off in investment, which put pressure on the economy.

More businesses than ever are missing payments in 2019, highlighting an ongoing cash crunch as the Chinese cabinet intends to give up broad policy easing.

china geopolitics economy