Walter Hutchens’ Blog

New rules have been released concerning the Stock Issuance Examination Committee. The Chinese text of the rules is available here. A PRC press story announcing promulgation of detailed operational rules for the SIEC is here.

I’ve discussed the SIEC and these expected rule changes a few times here already. The changes appear to be as expected–reducing the size of the SIEC and making its membership and deliberations matters of public record.

The proper Chinese name of this committee is the 股票发行审核委员会 or Gupiao faxing shenhe weiyuanhui. This can be literally translated as the Stock Issuance Examination & Verification Committee. I usually shorten the translation of shenhe to just “examination” and refer to the committee as the SIEC. The Wall Street Journal today called it the “Public Offering Assessment Committee.” Caijing magazine recently gave it the delightful name “the Public Offering Review Committee (PORC).” In a sense, it is a pork committee, since it decides which state-owned enterprises can obtain a windfall from issuing securities.

Whatever it is called, my reaction to these new rules is that this is not an “overhaul” of anything. Today’s WSJ headline “China Considers an Overhaul Of Stagnant Equities Market” ran over a story on the SIEC rule changes and other matters, some of which are more significant than the SIEC changes. The SIEC changes simply do not overhaul how China controls the issuance of securities. This is merely tweaking one body involved in that process. It doesn’t change the SIEC’s mandate to review IPO applications. It is of marginal importance how many people are on this committee and whether its membership list is a public record or not. Although more sunlight should make the committee more accountable, the real issue is why should China have a committee selecting who can issue shares in the first place? An approval committee suggests such a committee will do a better job than investors. I don’t think experience has proven that. Moreover, the SIEC votes on applications brought to it by the CSRC, not by investment banks or hopeful IPO applicants themselves. Thus the SIEC is part of a system that keeps the issuance process under government control.

I recall some earlier PRC rah-rah that the fact that shenhe or examine and verify is some kind of liberalization. Shenhe is assertedly less onerous than pizhun or “approve.” I guess the idea is that to shenhe means to make sure an applicant meets the objective requirements for issuing securities in China’s 1993 Company Law and 1998 Securities Law. But in practice shenhe does not seem to have been less vexatious than pizhun. Certainly not every company meeting the criteria of the Company Law can conduct an IPO in China, and the IPOs of many companies that do not meet its requirements would probably be welcome by investors if the decision were up to them, not the PRC government.

The SIEC should probably be eliminated, not tweaked.