The kite on a string: state power and the Chinese IPO mechanism on the path to liberalization

ABSTRACT The Chinese stock market has introduced a registration-based IPO mechanism, showing the state’s determination to further liberalize the stock market. However, during its implementation, administrative intervention practices were frequently observed throughout the entire IPO process. This article argues that such practice is expected to persist independent of legal enforcement mechanisms improvement, due to the state’s multiple roles in the market. The state is the exclusive supplier of the IPO mechanism as well as the regulator, which responds to a hybrid demand of the market and the state. The state needs administrative interreference to meet its demands to give preferential treatments to politically connected firms, to contain investment risks in market turbulences, and to use the IPO market as a tool to implement its strategic polices. At the meanwhile, a more predictable and transparent IPO mechanism is demanded. Therefore, the equilibrium interaction between an active government and a more liberalized market should be found. In this regard, the ongoing development of the Chinese IPO mechanism is on a viable track.