China: initial plenum offerings - FT.com Reform could lead to healthier stocks but investors may have to wait a bit longer Shares in two big Chinese securities companies up almost a fifth in Hong Kong in a matter of days? Why, it can only be the result of another gnomic pronouncement from the Third Plenum. At the Chinese leadership's summit last week came the decision to "promote reform towards a registration-based stock-issuing system." Somebody likes the sound of this, whatever the detail or timetable for reviving mainland initial public offerings, judging by the shares of Citic and Haitong. A single sentence is better than nothing, which is what mainland IPO hunters have been getting for more than a year. Of 700 companies that have applied to the Chinese securities regulator to list in Shanghai or Shenzhen, none has won approval in 14 months. Many have given up and fled to Hong Kong to attract capital, helping its market amid a general slump in listings overall. One way of reviving the sluggish IPO pipeline, already implied by "registration-based," is to focus on ensuring that candidate issuers meet specific legal requirements - that is, that they are not frauds. This would be faster and more transparent than a vague "approval" process. But it cannot be the only answer, if China's equity markets are to avoid a tide of junk stocks. Brokers should face greater obligations over due diligence on deals they underwrite: some legal risk to go alongside the exuberance. Retail investors account for almost two-thirds of the A-share market by transaction value, so it is nigh-on essential. Sophisticated foreign buyers are still negligible players. Only last month Hong Kong began enforcing a law that makes advisers criminally liable for a fraudulent IPO prospectus, after such scandals as China Forestry. That is a model to follow. But the law took a year to bring to fruition and has probably increased the lead time for bringing deals to market. Mainland investors have already waited for IPOs to return. Waiting longer, if it could promise healthier stocks post-offering too, would be worth it.