Reform of China's IPO Mechanism: Enhancing Efficiency and Optimizing the Market Ecosystem

A well-developed financial market system is crucial for supporting high-quality development in the new era. Initial Public Offerings (IPOs) are essential for enabling financial markets to facilitate new industrialization while accelerating the development of a manufacturing powerhouse. Therefore, research on IPO mechanism reform holds significant practical implications. This paper examines the impact of China's IPO mechanism reform by studying the equilibrium relationship between the primary market and the lending market. Using empirical analysis, we compare the average return on online subscriptions for newly listed shares using the risk-free rate before and after China's 2015 IPO mechanism reform, as well as analyze the underlying mechanisms driving excess returns during both periods. Our findings indicate a gradual alignment of returns in the primary and lending markets, with institutional arbitrage opportunities between them diminishing. The reforms have effectively enhanced market mechanisms, improved pricing capabilities, rationalized participant behavior, and optimized the securities market ecosystem. These improvements have contributed to the market's equilibrium and enhanced the market's ability to interpret information. However, further improvements to the IPO mechanism are necessary, including deeper market-oriented reforms, standardization of participant behavior, acceleration of a comprehensive registration system, and stronger information disclosure and quality management.