A Study Of The Marketlizing Process Of IPOs In China

High nominal returns, low real returns, little risk, great oversubscription and high turnover of Initial Public Offerings (IPOs) are long-standing distinguishing features of Chinese capital markets, which damage the market efficiency and the resource allocation efficiency. To solve these problems, in 1999 the government began to advance the institutional reforms and marketlization in Chinese IPOs market but this process was in logjam at the end of 2001.This article analyzes the institutional characters of Chinese IPOs issues and empirically investigates the whole IPOs price process before and after the marketlization reform respectively. I find that although the primary market reform beginning in 1999 has actually brought the marketlized issuing prices, it did not radically improve the market efficiency. The reason lies in the fact that the reform neglected the natural relation between the primary and the second stock market. Without solving the essential problems of limited stocks supply and the aftermarket inefficiency, the efforts to push partial and formally marketlization in an incomplete market consequentially led to "quasi-marketlization" -dissatisfactory effects, institution distortion, only with the superficies of marketlization but without marketlization essence. The corresponding advice is: the marketlizing process of IPOs in China should follow a certain order: first relax the stocks supply limitation and reduce the government intervention in the selection of issuing firms, and then introduce marketlizing issuing mechanisms. More important, the government needs to realize that the essence of capital market lies in the price discovery and the resource allocation functions. Too much emphasis on "capital raising" or "stabilizing" will be harmful to the further development and internationalization of Chinese stock market.