BEIJING — Chinese regulators have launched an intensive review of how brokerages conduct due diligence on initial public offerings, as robotics and artificial intelligence companies rush to list. The aim is to tighten verification during the listing process and prevent losses for investors.
Chinese authorities imposed a total of 50 penalties related to investment banking work on 23 brokerages between the start of this year and the 25th of this month, according to Jiemian News, a local business outlet, on the 27th.
By type of violation, inadequate due diligence accounted for 43 cases, or about 86% of the total. Most involved IPOs, but the crackdown has widened this year to other business lines including bond underwriting, mergers and acquisitions, and refinancing, the outlet noted. Zhongtian Guofu Securities, for example, received the harshest sanction handed down this year — a six-month suspension of its financial advisory business — over false statements in documents filed during a private share issuance in 2017.
Regulators have also markedly stepped up efforts to hold individuals accountable. Of the 50 penalties, 30 targeted individuals, more than half the total. Among working-level supervisors, four have already been designated "unfit persons" this year, barring them from related work for one year.
The moves are part of a policy to improve the quality of listed companies that Chinese authorities have pushed aggressively for the past two years. After a weak stock market and disputes over poor-quality listings sent investor confidence to rock bottom from 2022, regulators sharply tightened rules on listing reviews and post-listing supervision. Qi Menglin, a partner at Huashang Law Firm, said oversight now reaches down to the most basic problems in work processes and covers all major stages of investment banking operations.
Even so, enthusiasm for robotics IPOs remains intense despite the tighter rules. Infipowers and Youdear AI, two startups based in Hangzhou, are preparing to list in Hong Kong next year, according to the South China Morning Post. Both were founded by former Alibaba executives. Agibot, Leju Robot and Deep Robotics are among other companies pursuing listings in Hong Kong or on the mainland. Fuhua Capital, a Chinese venture capital firm, warned that too much money is flowing into robotics companies and that their valuations are being overstated.
