CHINA’S plan to build confidence in domestic stock markets, and turn around their reputation as financial casinos, will depend on a regulatory gamble paying off next year.

    Authorities have decided to lift a ban on initial public offerings (IPOs) from as early as next month, wagering that a series of confidence-building measures announced recently will ensure healthy demand for the tide of new shares expected in 2014.

    But if they are wrong, a flood of new listings could not only sink China’s already-struggling bourses but also jeopardize a bigger reform goal: to ensure more money flows to where it is needed in the world’s second-largest economy.

    Early signs are not encouraging. Investors appear far from persuaded that their stock markets are on the threshold of a transformation into investment destinations that are worthy alternatives to bank deposits, property and other preferred homes for their long-term savings.

    “We stock investors are all idiots! Idiots!” said a middle-aged man, who gave his surname as Li, speaking in a retail stock-trading room at a brokerage in downtown Shanghai.

    “Why do we buy these things? The U.S. market is at an all-time high and the Chinese markets are down. When the U.S. market dives, we dive even further. As for the impact of the resumption of IPOs, my attitude is extremely pessimistic.”

    Though a market cannot thrive for long without new listings, China’s freeze helped trigger a strong rally in early 2013 by choking the supply of new listings. The CSI300 Index, made up of 300 stocks on the Shanghai and Shenzhen exchanges, gained over 30 percent in the first two months after the freeze.

    The index has held onto some of its gains — it is now up 12 percent since the IPO ban — but its rally cannot disguise the fact that China’s stock markets remain among the world’s worst-performing bourses over the past two years.

    With more than 800 new companies queued to tap the market — and with Ernst & Young estimating that 200 billion yuan (US$33 billion) will be raised in 2014 — there are concerns investors will simply sell shares in existing firms to fund their IPO purchases, a zero-sum scenario for the overall market.

    To build confidence ahead of the IPO resumption, authorities have announced plans to improve corporate disclosure, crack down on insider trading, hurry defunct stocks off the boards and vet IPOs to prevent newly listed “junk stocks” from replacing them.

    The securities regulator has also moved to rid the IPO market of its shooting stars — stocks that shine brightly on debut before dying out a few months later and trading below their issue price.

    The China Securities Regulatory Commission has ruled that controlling stakeholders cannot sell their stock within two years of an IPO, a lockup that will be extended if it is trading below its issue price at the end of that two-year period. If firms make misleading statements during an IPO, their owners and underwriters may be forced to buy back shares.

    However, brokerages complain that domestic retail investors, who account for most brokerage accounts and transaction volumes, remain sour on equities.

    The number of active trading accounts fell nearly 6 percent between Jan. 1 and Dec. 6. Worse, many accounts are inactive: exchange data show 85 percent of open accounts conducted no trades in November, on par with previous months.

    In theory, there is plenty of money to fund IPOs without triggering a sell-off of existing stocks: China had over 43 trillion yuan in personal savings deposits in October, central bank data show. (SD-Agencies)