Caixin Weekly | Primary Market Anticipates a Turnaround (AI Translation)

财新周刊｜一级市场期待转机

**Summary of Key Information from the Article:**

In the primary market amidst a capital winter, CICC Capital has led China's VC/PE industry with nine IPO exits in the first three quarters of 2024, despite a 41% decrease in new fund setups in the third quarter. The IPO landscape is currently challenging, with a decline of 52.29% year-over-year in global launches, significantly affecting A-share, U.S., and Hong Kong IPOs [para. 1][para. 2]. This slowdown is influenced by economic policies and the China Securities Regulatory Commission's decision to slow IPOs. Although policies have been introduced to develop venture capital, including the "17 Measures for Venture Capital," challenges in fundraising and exits remain prevalent [para. 3][para. 4].

Efforts to revive the IPO market include suggestions from industry insiders for its gradual normalization and concerns about the pressure on exits after the IPO pace restriction in August 2023. A significant reduction in IPO reviews and an increase in IPO withdrawals highlight the stress in the VC/PE sectors. Experts like Liu Shengjun argue that the quality of listed companies should be prioritized over quantity to sustain the capital market [para. 5][para. 6]. Surveys indicate a preference among venture capital institutions for exits via listing on GEM and STAR boards, emphasizing the necessity of maintaining an open IPO market for successful exits [para. 8][para. 9].

Despite the slowdown, mergers and acquisitions are gaining momentum, bolstered by favorable policies like the "Six Provisions on Mergers and Acquisitions" from the CSRC. These encourage industrial integration and phase restructuring methods, providing another viable exit strategy alongside IPOs, although challenges in market maturity remain. The A-share market heavily relies on issuing stock payments instead of cash for M&A transactions, indicating room for optimization [para. 10][para. 13].

Furthermore, state-owned capital plays a crucial role in VC/PE funding in China, although traditionally exhibiting low risk tolerance due to stringent assessment standards. Recent initiatives aim to liberalize these standards and enhance the role of patient capital within the state sector, with adjustments in local policies observed in areas like Guangdong and others. These changes support a more market-oriented approach for state investments [para. 15][para. 17].

Fostering patient capital's role is echoed at forums like the 2024 Financial Street Forum, where Wu Qing emphasized the strategic utilitarian of patient capital in venture investing. At the same time, Li Yunze underlined the potential for insurance funds to serve as patient capital, though regulatory restrictions exist. New policy directions include expanding equity investment pilots and encouraging banks' Asset Investment Companies to engage in PE/VC investments, although the market prefers banks to act as limited partners rather than general partners [para. 20][para. 21][para. 26].

Additionally, corporate venture capital (CVC) is identified as another vehicle for strategic investor engagement, which values innovation over financial returns. Encouraging the CVC model can provide a strategic advantage with less exit pressure, benefiting from its long-term investment perspective [para. 29].

Overall, the market is adjusting structurally, with efforts focusing on stabilizing capital flows, improving IPO conditions, nurturing mergers, boosting policy measures for state-owned and corporate venture activities, and ultimately its overarching appeal of building a sustainable and resilient primary market ecosystem.