IPOs can't happen too soon

As we approach the turn of the year and prepare to enter 2014, it is worth remembering that it was way back in October 2012 that the last initial public offering took place in China.

Fraud and misconduct by financial advisers and companies applying for IPOs led to a decision by the central government to suspend initial offerings indefinitely.

The very recent news, therefore, of reform to the IPO process at stock exchanges in China is extremely welcome and timely.

The China Securities Regulatory Commission on Saturday unveiled a reform plan for the IPO system. It is seen as a major step in introducing a system of registration for IPO issuances to replace the current approval mechanism. Shi Yan / For China Daily

Essentially, the reform package should lead to a far more transparent process, with information disclosure and transparency at its heart. IPO applicants will be forced to make more information public and potential investors will be able to make better-informed investment decisions.

The reform package also pledges stricter enforcement of laws and regulations post-flotation, which should also boost investor confidence.

But with more than 700 companies in the IPO pipeline, will these measures not lead to a dangerous surge in IPO activity? This is highly unlikely. Approximately 50 of those in the pipeline should be ready for flotation by the end of January 2014, a very manageable number.

The reform package and other recent announcements in the same vein should lead to successful IPOs early next year, but this will not lead to an overly large number of follow-up IPO applications, and it certainly will not lead to any fast-tracking of IPO applications from now on.

Instead, the new system will create a climate of confidence among the investment community, especially those all-important smaller investors. For this confidence to persist, and a long-term resurrection in China's IPO market to take place, the authorities will surely manage this more transparent and public IPO pipeline.