The much-anticipated listing of Chinese e-commerce giant Alibaba early in 2014 will not take place in China, but that won't dampen investor enthusiasm for a frenzy of new initial public offerings when Chinese regulators finally lift the 14-month freeze on domestic IPOs.
The floodgates could open as early as January, with more than 760 companies lined up to test investors' appetite for Chinese companies. "There's been a lot of backup for companies wanting to go public," says Hurst Lin, general partner at DCM, a U.S. venture capital firm. "With the reopening of the IPO window, there will be a flurry of new listings."
Last month the China Securities Regulatory Commission issued new guidelines that are much more market-driven, and less dependent on the discretion of Chinese regulators. "What they're talking about is going to a system similar with the U.S." says Paul Gillis, a professor at Peking University's Guanghua School of Management. "You clear your IPO with the regulators; you let companies to go to the market when they choose to."
In the past, regulators judged whether companies were ready to go public in a process that could involve 10 steps and several years.
The IPO channel was shut down in October 2012 after a sharp decline in share prices and reports of fraud and misleading accounting. Up to then, Greater China (including Hong Kong and Taiwan) had become the world's largest IPO market, reaching $132.8 billion raised in 2010 before dropping sharply to $29.4 billion in 2012, according to a PricewaterhouseCoopers report.
The new rules reflect a promise by China's new leadership to loosen government controls on the economy. Under the old system, regulators often favored poorly run state enterprises while smaller private companies could wait years for approval.
"The new rules are a good step towards a system in which firms that meet the standards can go to the stock and bond markets," says David Dollar, an expert on the Chinese economy at the Brookings Institution in Washington. "Up until now regulators have had a lot of discretion about what IPOs and bond issues could go forward. "
(Read more: Chinese IPOs: Hot, hot, hot!)