The massive stimulus package issued in November 2008 helped stop the Chinese real economy from declining further, Lu said, but the large-scale expansion of bank loans, which helped shore up GDP growth previously, is not sustainable in the long run. The real economic revival, as a result, needs to be backed up by money injection from the capital market, making IPO re-introduction an urgent task.

The IPO reopening shows that the regulatory department is confident about the capital markets. It also means the confidence of companies and investors may be returning, Lu said.

The benchmark Shanghai Composite Index has risen more than 100 percent since the lowest 1,664 points in October 2008, taking the lead in global stock markets. The well-performed stock markets have also laid a solid foundation for the IPO reintroduction.

Previously, financial institutions received the "lion's share" of an IPO, while individual investors were only able to buy newly listed companies' shares on the secondary market. Because the IPO price is a lot lower than its trading price on the secondary market, discontented investors began to speak out against the practice.

A systematic reform will accompany the IPO reopening this time where the market will play a larger role in deciding IPO prices. Small and medium-sized investors will also be able to participate actively in the IPO, Lu said.

Process of revitalization

Leading up to the reopening, the CSRC took various restrictive measures in order to prevent IPO speculation. Despite these precautions, new shares were still hot commodities in the market. Guilin Sanjin Pharmaceutical Co. Ltd. and Zhejiang Wanma Cable Co. Ltd., the first two companies listed in domestic stock markets after IPOs resumed, saw share prices rise 81.87 percent and 125.48 percent, respectively, on the first day of trading. Both were temporarily suspended due to the price surge.

The relatively loose monetary policy, which will not change for the time being, as well as people's confidence on the economic outlook of China has underpinned the expansion of the capital market, Lu said.

Two major contributors—more bank savings of the citizens and low government debt—helped the capital market revitalization, Lu pointed out. An abundance of savings deposits enables banks to increase lending, while lowering government debt allows the government to implement pro-active fiscal policies and influence economic performance through tax readjustment and expenditure expansions.

The abundant liquidity has given rise to a surge in the capital markets, said Xu Xiaonian, economics and finance professor at China Europe International Business School, in an interview with China's Central Television.

According to statistics from the central bank, in the first half of this year commercial banks lent out 7.5 trillion yuan ($1.1 trillion), with a considerable part of the capital flowing into the stock markets, Xu said.

Aside from the loan expansion earlier this year, a total of 38 new mutual funds have completed fund raising, with 26 of them raising up to 67.5 billion yuan ($9.9 billion) for the stock markets.

Foreign investment

The Ministry of Commerce (MOFCOM), according to a July 2 statement by Vice Minister of Commerce Chen Jian, is examining and modifying relevant policies to encourage well-performed foreign-invested companies to launch IPOs in the mainland stock markets.

With many foreign-invested companies feeling encouraged by the MOFCOM statement, the Chinese stock markets are expected to hold foreign company IPOs in the near future.

Currently, there are nearly 400,000 foreign-invested companies on China's mainland, many of which are beleaguered by the credit crunch. If they are allowed to raise money in the mainland's capital market, their financial burden will be greatly relieved.

In the past, foreign-holding and foreign-owned companies were kept away from being directly listed in the mainland stock markets. But domestic companies with foreign investment of less than 30 percent (which is not a controlling stake) were allowed to be listed.

In November 2001, the CSRC and other government departments jointly issued the Circular on Some Opinions Relevant to Foreign Investment in Listed Companies, which considered allowing companies with foreign investment to be listed in the mainland stock markets. The circular also provided details about the IPOs of foreign-invested companies. The CSRC did not subsequently follow up with relevant rules and regulations, which had a negative impact on the pace of foreign companies' IPOs on the Chinese mainland.