The Aosaikang IPO debacle has revealed the extent of problems in the Chinese stock market, which apparently caught the watchdog agency by surprise.

After many months of preparation, highlighted by the introduction of a fresh approach augmented by a new set of rules, the China Securities Regulatory Commission, or CSRC, lifted the year-long moratorium on IPOs, allowing a host of companies to join the rush to raise money from the already beleaguered stock market.

First out of the gate was Aosaikang. But it didn't get far before the CSRC gave the order to abort because of glaring irregularities.

The pricing of Aosaikang's new shares, at nearly 70 times its earnings, was totally out of line with the market's average price-to-earnings ratio of less than 15 times. What's more, the exceptionally small proportion of new shares issued in the company's IPO raised the question of whether the owners were seeking to unload their holdings rather than to raise cash to grow the company.

In addition, part of the information disclosed in the company's prospectus was challenged by a number of analysts and commentators who pointed out inconsistencies in the company's market share claims. Their comments were widely reported by the media.

The CSRC has since ordered the cancellation of all the IPOs that were previously scheduled for January and decreed addition rules to prevent further abuse. On its website, the CSRC reminded market operators that a market oriented approach to IPOs should never be taken as a signal of a free-for-all.

Before falling flat on its face in the Aosaikang fiasco, the CSRC was understandably proud of its efforts to overhaul the IPO regulations, which apparently bestowed the confidence for it to lift the ban despite the objections of many personal investors.

Frustrated by the prolonged market slump, these investors have blamed IPOs for draining market liquidity by allowing business owners to cash out. The new IPO rules promulgated by the CSRC before the lifting of the ban have done little to restore investors' confidence.