Transparency has always been a sensitive issue in China. There’s an old Chinese saying that good news stays at home, while bad news travels a thousand miles. In reality, things often happen the other way around in China.
Recently, information disclosure has become the most sought-after improvement among Chinese publicly traded companies — and in a bid to boost transparency, the securities regulator has for the first time announced the names of more than 500 companies seeking approval for IPOs in the A-share market. It has also ordered the companies to file a preliminary prospectus one month before a scheduled listing assessment, which is up from five days previously.
It remains to be seen whether the new policy is the start of a round of measures on improving transparency or whether the campaign will reach beyond primary equity markets. However, the government's initial efforts have certainly had some impact on the equity market.
Now that investors have more time to understand and verify the information provided by listing applicants, companies with controversial businesses and practices may suffer a turbulent listing process and may even struggle to raise funding at all.
Less than a month after regulators published the names of listing candidates, two companies have been facing an IPO backlash from home and abroad. More companies may yet face similar problems.
Guizhentang, a pharmaceutical company that makes profits by selling bear bile, has triggered the biggest uproar. The Fujian-based company harvests and processes bear bile for medical use. After having been opposed by outraged internet users and animal lovers, institutional investors are also reported to be boycotting the company's IPO.
A survey that interviewed 43 fund managers and investment bankers from different firms showed that 33 of them, or 77% of the total, claimed they would not take part in the possible IPO of the bear bile company.
The official Securities Times, which conducted the poll, found 23 of the respondents said the company shouldn't go public and only three were in support of the company and its fundraising plan.
In a bid to rescue its tarnished public image and pave the way for a listing, Guizhentang invited more than 100 mainland journalists to visit its bear bile-extracting bases in Fujian and to prove that they have developed a “painless” drainage method. However, reporters suspected that the “method” involved anaesthetising the bears during their visit, which only added to the outcry.
Guizhentang hopes to use the proceeds from the fundraising to increase its output of bear-bile powder to 4,000 kilograms a year and to expand its breeding centre's population to 1,200 from the current 400, according to the company.
Qiaodan Sports, a sportswear company whose name is the same as the Chinese version of basketball star Michael Jordan, is another listing candidate facing a backlash on its $175 million IPO. The company started earning profits from the Qiaodan name as early as the 1980s — and its business would probably have remained unnoticed if it had not come to the public market to ask for capital.
It is right that public fundraising should attract greater public scrutiny, and the good news is that this now seems to be happening in China. The bad news is that bear-bile products are in such demand that Guizhentang can make plans to triple production.