Exploring IPOs on ChiNext board under registration system

By Liu Yinhong, Wang Cheng and Zhang Ming, Jincheng Tongda & Neal
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After Shenzhen Stock Exchange (SZSE) issued a series of rules and notices on 12 June 2020 – such as the Rules Governing the Listing of Shares on the ChiNext Market of Shenzhen Stock Exchange, on 24 August 2020 – the first 18 companies collectively landed on the ChiNext board, marking the reform of the registration-based IPO system on ChiNext entering a new era, while also marking the full roll-out of the A-share registration system.

刘胤宏, Liu Yinhong, Senior partner, Head of capital market practice, Jincheng Tongda & Neal
Liu Yinhong
Managing partner, Head of capital market practice
Jincheng Tongda & Neal

The popularity of the ChiNext board continues in 2021. As of 31 May, since the establishment of the registration-based IPO system on the ChiNext board, 590 company applications have been accepted, and about 130 companies have been successfully listed. From January to May 2021, 77 IPO companies passed the listing examination of the SZSE listing review committee, and about RMB40 billion (USD6.2 billion) was raised.

The launch of the registration-based IPO system on ChiNext is widely recognised by the market. On a legal level, it comes from the revised Securities Law passed in December 2019, which clearly provides the issuance and registration system of securities with information disclosure as the core.

Disclosure requirements

The registration system does not mean a loosening of regulation, and companies are faced with stricter information disclosure requirements. Faced with many companies applying for IPOs, regulators have issued a series of measures.

On 29 January 2021, the China Securities Regulatory Commission (CSRC) issued the Regulations on On-the-Spot Inspection of IPO Companies as a support system for the new Securities Law. Subsequently, the CSRC announced that it would select 20 companies intending to be listed for on-the-spot inspections, after which 16 selected companies chose to withdraw their IPO applications.

王成, Wang Cheng, Senior partner, Jincheng Tongda & Neal
Wang Cheng
Senior partner
Jincheng Tongda & Neal

As of 31 May 2021, a total of 81 companies on the ChiNext board have withdrawn their applications, with a withdrawal rate of 13%. The authors believe that, centring on information disclosure, on-the-spot inspections of IPOs will normalise. Companies need to speak clearly and be responsible for the truthfulness, accuracy and completeness of their information disclosure.

On 5 February 2021, the CSRC released the Guidelines for the Application of Regulatory Rules: About the Shareholder Information Disclosure by the Companies Applying for IPO, requiring issuers to disclose whether there is any situation where the entities are prohibited by laws and regulations from holding shares, and deepening the requirements on intermediaries’ penetrating verification of shareholders.

Subsequently, the SZSE also issued a regulatory notice on disclosure of information of shareholders of IPO companies. It has always been the focus of regulatory attention to prohibit the holding of shares on behalf of others, and to prevent the transfer of interests. The guidelines further clarify that all holdings of shares on behalf of others must be cleared before the application for IPO.

On 28 May 2021, in response to the problem that former employees of the CSRC system held shares of some companies applying for an IPO, the CSRC released the Guidelines for the Application of Regulatory Rules – Issuance No. 2, requiring special verification of the shareholding by former employees of the CSRC system.

张明, Zhang Ming, Partner, Jincheng Tongda & Neal
Zhang Ming
Jincheng Tongda & Neal

On 20 March 2021, Yi Huiman, chairman of the commission, said at the CSRC Roundtable of China Development Forum 2021 that vigorous action would be taken against companies that attempted to “force their way to an IPO in a sick shape”, and that targeted measures would also be taken against the incompetence of sponsors. Yi also said that one of the key common reasons for a large percentage of IPO applicants withdrawing their listing applications during on-the-spot inspections was “the incompetence of their sponsors”.

The above-mentioned measures or statements by the regulatory authority further clarify the quality requirements of information disclosure, that is, intermediaries need to “review clearly” and verify the information disclosure. As early as 12 June 2020, the SZSE issued a Q&A on the Review of IPO and Listing of Stocks on the ChiNext Board, listing the following problems in companies’ operation and compliance:

(1) Going concern and independence. Verification of material illegal acts, horizontal competition, adverse changes of directors, supervisors and senior officers, calculation of going concern time and judgment of going concern ability, defects in capital contribution and reform, assets from shareholders and joint investment by listed companies and their affiliates, as well as key points of information disclosure;

(2) Shareholders and equity stability issues. Verification of multi-level overseas equity structure, actual controller identification and equity lock-up, new shareholder lock-up, valuation adjustment mechanism (VAM), trade union or employee stock ownership association and three types of shareholders, as well as key points of information disclosure;

(3) Financial and internal control issues. Verification of sound internal control system, customer concentration, third-party payment and dealer income confirmation, accounting policy differences, preparation of financial statements of the same controlling company, capitalisation of R&D expenses, treatment of unrecovered losses during reform and milestones of financial data disclosure, as well as key points of information disclosure;

(4) Listing standards. Verification of changes to the listing standards and application of the listing standards of red-chip companies, as well as key points of information disclosure; and

(5) Stock ownership incentive, information disclosure and other issues. Verification of employee stock ownership plan, option incentive, exemption of information disclosure related to military and commercial secrets and labour outsourcing, as well as key points of information disclosure.

Under the registration system, review authorities will inquire to ensure the compliance of information disclosure. In March 2021, a company failed to pass the review process due to compliance issues, while in early June 2021, a company withdrew its filing after a round of inquiries that focused on whether its internal compliance system was sound and effective, and whether there were existing significant adverse impacts on ongoing operations.

Under the registration-based IPO system on the ChiNext, compared with “performance being the king” under the previous review system, the weight of compliance by companies has increased, and this change requires companies and intermediaries to adapt as soon as possible.


The implementation of registration system has not lowered the threshold for IPOs. Yi said that “current IPO issuance is neither tightened nor loosened”. Therefore, companies and intermediaries should comprehensively analyse and adapt to the new requirements regarding the quality of information disclosure.

Liu Yinhong is a managing partner and the head of capital market practice at Jincheng Tongda & Neal. He can be contacted on +86 755 2223 5066 or by email at liuyinhong@jtnfa.com

Wang Cheng is a senior partner at Jincheng Tongda & Neal. He can be contacted on +86 21 3886 2205 or by email at juliuswang@jtnfa.com

Zhang Ming is a partner at Jincheng Tongda & Neal. He can be contacted on +86 755 2223 5518 or by email at zhangming@jtnfa.com

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