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Increased scrutiny from China’s securities regulator led to hundreds of IPO withdrawals

Imaginechina via AP Images
Don’t milk me, bro.
By Jake Maxwell Watts
Published Last updated This article is more than 2 years old.

Fujian Guizhentang Pharmaceutical, a Chinese bear-bile harvester, pulled its IPO this week under pressure from animal rights activists. But it’s not alone: 269 companies have done the same—including 16 banks—and the reason is likely connected to a recent clampdown on fraud.

IPOs in mainland China have been suspended since October as the China Securities Regulatory Commission attempts to clean up a process with a nefarious reputation. In 2012 over a third of 155 newly listed companies experienced a decline in profits in the first three quarters after their listings, with 28 falling more than 20%. In May the CSRC fined one brokerage, suspended another and warned a third for failing to apply due diligence when vetting listings, according to Reuters.

IPO applicants were instructed in January to conduct a closer inspection of their own books to pull out inconsistencies and ensure information was correct. That self-inspection period came to an end in April, when the CSRC began spot-checking. Approvals are expected again from around August, but the regulator has been absolutely clear on one thing: earnings manipulation and financial irregularity will result in legal action. It looks like IPO hopefuls have paid attention.

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