In a bid to head off a speculative bubble, China’s securities regulator is set to bar companies from selling new shares to fund investments in film and television, online gaming, Internet finance and virtual reality, fields that it deems non-core businesses, a leading Chinese magazine reported.

Citing two unnamed sources, one at the China Securities Regulatory Commission (CSRC), and the other an investment banker, respected business outlet Caixin reported on Wednesday that media and entertainment had been singled out because they are viewed as not closely related to the so-called “real economy.”

According to Caixin’s source at the CSRC, the regulator is worried that listed firms will take advantage of investor enthusiasm in the movie and television business, video games, and virtual reality technologies, which have shown signs of overheating. The CSRC did not respond to China Film Insider’s inquiries. Stocks related to the four “non-tangible” fields dropped sharply on local bourses following the news, despite the fact the securities regulator has yet to confirm the suspected impending ban on non-core business buys.

As the traditional drivers of China’s economy slow down, businesses have been scrambling to get into media and entertainment. China’s film industry in particular is awash with money, with 166 film-focused private-equity funds established last year according to Beijing-based Zero2IPO Research, which researches financial institutions.

In fact, of all listed companies, film and television companies including Huayi Brothers, Enlight Media, Huace and Wanda Cinema, performed the best on local bourses in 2015, Zhang Juhua of Capital Securities told local media CMG.

And new entertainment companies are springing up at a rapid rate. According to a report released by China’s National Development and Reform Commission (NDRC) on Wednesday, 27,000 cultural and entertainment firms were registered in the first quarter of this year.

Market analyst Angus Nicholson told it’s good that Chinese regulators are looking to clamp down on some of the more suspect capital raising campaigns. “Chinese companies do have a history of renaming themselves so that it sounds like they have connections to whichever industry is hot” Nicholson said.

In recent years, hundreds of Chinese companies have either made a superficial change to their name to something sexier, or have completely jettisoned their core business to pursue unrelated fields.

“If a company that does not do its main business right branches out into an unrelated field, it is often just to create hype,” one of Caixin’s sources said, adding that failing to to regulate would mean, “continuing to inflate bubbles and ultimately hurt investor interests.”

Putting the brakes on breakneck investment in the film sector may be welcomed by an industry that some worry is developing a bubble. Last year, only 372 of 686 domestic films made were able to secure theatrical releases, according to Beijing-based film-research company EntGroup. But regulators will need to look at higher quality reporting standards among other measures, if they want to make a lasting change.

“Such restrictions are only likely to be a temporary measure,” Nicholson said. “There are structural factors in China’s capital markets that need to be fixed to improve corporate governance and protect shareholders.”

Source: Chinafilminsider, Caixin

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