China has never been entirely at ease with the concept of equity ownership. In 1992, eight years after shares began to be traded, and two years after Shanghai and Shenzhen founded their public exchanges, Deng Xiaoping was still questioning whether stock markets were a force for “good or evil.”
That ambivalence persists. So far this year the mainland has accounted for 17.5 per cent of the world's equity issuance by value, according to Dealogic – almost double the record year of 2007, when Chinese issuance was 9.5 per cent of the total. And now the China Securities Regulatory Commission has begun to fret. Candidates in sectors plagued by over-capacity are being denied approvals for secondary issues, while dozens of companies have been prevented from raising cash to repay bank loans or to replenish working capital.
That sounds sensible. The more China focuses on the quality of issuance, rather than the volume of it, the better for all market participants. But the more heavy-handed the regulation, the greater the danger that recent moves towards a more market-oriented regime will be undone. In particular, the CSRC seems determined to interfere once more in the pricing of new issues, having resolved last year to defer to the laws of supply and demand.