(Yicai) Nov. 5 -- China’s initial public offering market has cooled markedly in the second half, with fewer applications accepted and more listing reviews terminated, particularly in the chip sector, amid a stock market decline and tighter regulatory oversight.

The Shanghai, Shenzhen, and Beijing stock exchanges have accepted only six new IPO applications since July, after taking 242 in the six months ended June 30, according to financial data platform Wind Information.

The data also showed that 40 IPO applications have been reviewed so far in the second half, of which 39 passed. Applications from 103 companies were reviewed in the first half, of which 99 passed, with 60 offerings passing muster in the first four months of this year.

Adjustments to the pace of IPO activity are increasingly a matter of routine fine-tuning within a market-oriented and regulatory framework, according to industry insiders. The key challenge is to maintain a dynamic balance between the market’s financing function and its capacity to absorb new listings, they said.

Stock markets in the Chinese mainland were volatile in the first half, with investors piling into artificial intelligence, robotics, and semiconductor stocks, while other sectors were weighed down by weak consumer demand. The volatility eased in the second half, but the stock market also weakened, mirroring the IPO slowdown.

One key factor in the first half was that several high-profile technology companies went public, with their IPO reviews moving at an accelerated pace. For example, ChangXin Memory Technologies and Unitree Robotics secured registration approval in just three to six months.

As well as the IPO acceptance and review slowdown, 43 companies have seen their review or registration processes terminated since the start of the second half, 11 more than the 32 canned in the first half. Many of these companies are in the semiconductor sector.

The increase in the number of cancellations reflects the dual impact of normalized delisting processes and stricter regulatory scrutiny under the registration-based IPO system, according to Tian Lihui, head of the Financial Development Research Institute of Nankai University.

The primary reason is often a mismatch between a company’s fundamentals and the requirements for listing, Tian noted. Some companies have encountered downturns in the industry cycle or fluctuations in earnings after submitting their IPO applications, resulting in financial indicators that no longer meet the criteria for sustained profitability.

Industry insiders said there is an increased emphasis on strictly policing the "entry gate," with the current IPO review process maintaining a zero-tolerance policy toward financial fraud. This means any company with questionable financial data will find it difficult to pass the review.

Tian also pointed out that the IPO reverses suffered by chip companies are partly down to the fact that the industry is going through a challenging period of inventory reduction and demand restructuring, as well as supply chain uncertainty caused by more sharply drawn geopolitical rivalries.

This means the companies have to navigate technological shifts, manage lengthy customer certification cycles, and align their market valuations with investor expectations, he said.

Editor: Tom Litting