Compared to the original regulations, the new rules emphasize the appropriate application of proceeds collected during the share issuing and the responsibility of lead underwriters in recommending qualified applicants.

They have also reduced interference from the government and introduced more market-oriented practices, which require more participation and supervision from intermediaries, securities houses, accounting companies and law firms, a CSRC circular said.

For example, securities firms will have a bigger say than before in recommending firms who have plans to issue new shares.

But they must evaluate carefully the quality of the applicants, watch for possible insider trading and ensure proper usage of the newly collected funds.

Those who fail to discover incidences of fraud or are caught concealing irregularities in the process will have to undergo rectification and have their right to underwrite stocks temporarily removed.

Accounting firms should also give objective reports of the financial status and inner control mechanisms of listed firms.

Those who provide false profit predictions will be required to give public explanations.

Meanwhile, CSRC stressed that listed companies should first ensure returns for their shareholders before applying for further offerings.

Applicants for share offerings must have a record of dividend payments over the past three years.

Moreover, to avoid the misuse of funds, listed companies who have issued new shares must reveal, in their annual reports for three consecutive years, the exact application and outcome of the proceeds.

Money should not be invested in financial institutions, including securities firms.

The rules are also applicable to B share listed firms. CSRC secretary general Tu Guangshao said recently that the commission would encourage more B-share companies to issue new shares.

Over the past few years, the number of B share initial public offerings and the expansion of shares of existent B-share companies have fallen behind that of A shares.

(China Daily 03/29/2001)