The capability of China's stock market to serve the real economy was improved 
last year with the implementation of the registration-based initial public 
offering (IPO) system, according to a report recently released by Peking 
University, HSBC Business School (PHBS) Think Tank. The report studies 
characteristics of initial public offering (IPO) and refinancing, and the 
relevant policies and systems of the Chinese equity market, as well as the 
remaining problems in 2021.

Compared to previous years, it finds that the proportion of IPOs of industrial 
companies has increased 6.3%. In addition, the second-board markets (ChiNext 
and Sci-Tech Innovation Board) have provided more financing support for small 
and medium-sized private enterprises (SMEs), especially those in the 
industrial, materials, IT, and healthcare sectors. All of these imply growing 
support in the capital market to serve China's real economy.

In addition, the newly-established Beijing Stock Exchange (BSE) marks a key 
step in China's efforts to deepen capital market reform, according to the 
report. Of the first batch of 81 companies listed on the newly-established 
(BSE), 78 % are SMEs in advanced manufacturing, modern services, high-tech 
services and strategic industries. Based on this, the report suggests that the 
BSE is playing a significant role in stimulating the direct financing of SMEs 
in the National Equities Exchange and Quotations, further enhancing the 
financing capability of China's multi-level capital market.

However, due to mixed pressure from refinancing, financial fraud, ineffective 
regulation, and irrational speculators, China's stock market is still dealing 
with multiple challenges to attract medium and long-term funds, according to 
the Think Tank. Researchers suggest that an effective issuance system, a 
transaction system, and a transparent regulation need to be implemented. For 
instance, the efficiency of the registration-based IPO system requires highly 
transparent information disclosure and proactive financing regulation. 
Effective policies to attract long-term capital and improve risk management are 
needed to curb the irrational speculation of both individual and institutional 
investors and ensure sustainable development of the equity market.

Source: Peking University HSBC Business School