The Chinese Mainland Stock Markets: From Quota Management to Sponsor System

The Chinese stock markets have a short history. Accordingly, the stock issuance regulatory system was established on a late date, mostly in light of the experience of overseas securities market. The stock issuance system of China has gone through the following stages:

Quota management stage (1993-1995): The securities management authorities of the State Council, based on the demands of national economic development and the condition of the capital market, determined the total quota. This was then divided and allocated to each provincial level administrative area and each industry. The quota was then again divided at the local level by local authorities on their own prerogative.

- Index management stage (1996-2000): The securities management authorities of the State Council determines the total number of enterprises allowed to go public in a certain period of time. The indexes are passed down to the government of each provincial area and the watchdog of each industry. The local authorities then recommend enterprises within the above indexes and submit the candidate lists to the securities regulatory authorities.

- Channel system stage (2001-2004): This is an approval system. The number of enterprises that can be recommended for listing is assigned to each securities company. A securities trader with main sponsor qualification has two to nine channels, which means that they can recommend two to nine enterprises for listing. The main sponsor bears the risks associated with stock issuance and obtains the power to recommend stocks for listing.

- Sponsor system (2004-present): According to the provision laid out by the Chinese securities authorities, the major players of the sponsor system include the sponsor and the sponsoring institution. The system was designed for sponsors to improve the quality of listed companies and maintain order in the securities market throughout the listing process. However, it has yet to fulfill its expectations as it continues to mature.

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