Graphics: GT

China's new Securities Law, which is likely to boost to easier-accessed but better-regulated A-share markets, will attract more overseas-listed mainland companies to harken back to the A-share markets, while speeding up the inflow of overseas investment capital, experts predicted. 

China's top legislature on Saturday approved an update of the country's Securities Law, which made revisions to rules on information disclosure and the registration-based IPO system, and stipulated more severe punishment for malpractices such as insider trading. 

The new law will push forward a registration-based IPO system and lower the share issuance requirement from "sustained profitability" to "sustainable operation ability." 

"The eased requirements on profitability status will make it easier for overseas-listed mainland companies to shift to the A-share market. A lot of them are tech companies that still can't promise stable profitability," Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Sunday. 

According to Xi, the A-share market's rigid profitability requirements for listing had been a major factor that forced many mainland companies to seek overseas IPOs to raise funds.

China has already applied the registration-based IPO system to the science and technology innovation board, moving away from the approval-based system. The change allows the market forces to decide what companies can list and how much they can raise. 

Xi predicted that China might apply the registration-based system next year to the ChiNext board, which is similar to the sci-tech innovation board. Changes on the main board won't be too fast, he said.  

Under the government's call, a number of overseas-listed mainland companies shifted to the A-share market in recent years, including tech giant 360 Security Technology Inc.

"A major appeal of the mainland stock markets is that they offer richer valuations for stocks compared with the US stock markets," Xi said. 

He nevertheless cautioned that the A-share market is still less attractive to overseas listed companies compared with the Hong Kong stock market, thanks to the latter's more flexible share structure regulations. 

Mainland-based technology giant Alibaba smashed the record for the largest IPO of 2019 when it launched a second listing on the Hong Kong stock market in November. Alibaba was able to get listed on the Hong Kong market after the Hong Kong stock exchange reformed its rules to allow dual class share structures, which is yet to be accepted on the mainland stock markets. 

Besides lowering the IPO threshold, the new law is also poised to further toughen punishments for irregular market practices compared with the previous draft, such as raising the maximum penalty for unlawful information disclosure to 10 million yuan ($1.43 million) from the previous 600,000 yuan. 

"Strengthening management and toughening punishment will direct the A-share market toward maturity. It will encourage overseas capital to flow into the mainland stock market while making international index providers more willing to increase the weighting of A shares in their indexes," said Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management.