China's stock regulator has allowed firms to resume fund-raising on domestic stock markets as announced on Sunday.
The new rule became effective yesterday, ending a one-year ban and paving the way for domestic flagship firms to expand their capital in the Chinese mainland's bourses.
This policy will give domestic investors more opportunities to invest in fast-expanding domestic conglomerates, many of which have listed offshore.
The boosting effect of the new policy is certainly not limited to that.
The policy-makers are clearly taking advantage of the recent strong market mood to push the healthy, long-term development of the market.
The new rule strengthens the information disclosure of companies that desire to go public, which will put them under better social supervision. Stricter regulation will be imposed on sponsors and intermediate agencies to make them more accountable in ensuring the quality of applicant companies.
It also enhances standards for corporate governance and financial soundness of applicant companies to promote the overall health of the market structure.
Keeping listed companies accountable and protecting small investors' interests are crucial to a market's livelihood. Whether policy-makers and market regulators are up to task in regards to both aspects largely determines a market's prospects, as past experiences at least in domestic market have shown.
Ineffective supervision and lack of accountability mechanisms for wrongdoers, which damages the interests of individual investors, have gutted market confidence in the past years, leading to a mass fund exodus and price slump.
The current rule, although it is more readily linked to the ongoing share-merger reform, is a move to construct a more healthy market.
It is fundamentally in line with the long-suppressed investor sentiment for policies that will rein in wild market speculators and promote a better investment atmosphere.
That is a reason for the strong index rises in both the Shanghai and Shenzhen stock exchanges yesterday, despite previous widespread fear that the resumption of fund-raising may usher in a share-issue flood, exceeding demand and costing stock prices.
A move in the right direction, the new rule will need follow-up measures in the coming years to fundamentally revamp the market, where many poorly functioning companies have managed to get listed and millions of investors have seen their interests damaged.
The current move shows that policy-makers have a firm grasp of the situation and are taking real action.
