Reading Rigid Bubble: From IPO Approval to the Imperial Exam

— When the gate becomes the goal, the institution begins to warp

Recently I was reading Chapter 3 of Zhu Ning’s Rigid Bubble, on implicit guarantees in China’s A-share market. Part of it discusses the IPO approval system.

I stopped on a very basic question:

Why does a company go public?

My first answer was simple: listing is a way to raise capital. Once a firm reaches a certain stage, it needs more money to expand — scale production, invest in R&D, open markets. Retained earnings or bank loans may no longer be enough. So going public becomes an important financing tool.

Unlike a bank loan, listing is not simply “borrowing.” The company sells a slice of equity; public investors become shareholders. The firm gets capital; investors share future upside and risk.

In a normal sequence, listing should come after a company has grown:

Build a good product, run the business well, reach a certain scale, then list to raise capital and keep growing.

Chapter 3 of Rigid Bubble made me realize that, in the A-share context, it may not be that simple.

1. When listing shifts from “means” to “gate”

The book notes that regulators run a fairly strict approval process for listed companies. The original intent is understandable: screen for relatively solid firms, protect investors, keep the capital market stable.

But here is the catch: when approval is very strict and listing slots are scarce, listing itself can stop being a financing tool and become the prize firms chase.

A company should care about: Is my product competitive? Is my business healthy? Can my model last?

When “Can we list?” becomes a decisive gate, attention may shift: How do we hit listing criteria? How do we make the numbers look better? How do we make the filing match review expectations?

Then firms may no longer operate only to operate — they operate in order to list.

That is the question this section left me with:

When an institution makes “passing a gate” extraordinarily important, participants may move their goal from “doing the real work well” to “getting through the gate.”

2. From IPO approval to the imperial exam

That line of thought led me to China’s historical keju (imperial examination) system.

The keju had progressive meaning. Before it, talent selection leaned heavily on pedigree, family, and networks; great clans could monopolize office for generations. The exam broke much of that monopoly, set a relatively unified standard, and gave more commoners a path to change their fate — not unlike today’s gaokao in spirit.

But that is also where the problem sits. When the exam becomes the main gate into the bureaucracy, a scholar’s goal can change. Reading might once have meant understanding the world, cultivating character, building governing capacity. When “passing” becomes the supreme goal, reading can slide into exam training.

So the goal of study may shift from “gaining real capability” to “fitting the exam’s rules” — much like firms under IPO approval.

Passing the listing review does not prove long-term operating strength; passing the imperial exam does not prove real governing skill. Clearing the gate only proves you adapted to that gate.

When the gate becomes the goal, what the system selects may not be those with the most real ability, but those best at adapting to the gate.

3. The exam was not only selection — it was also a governing tool

In the TV drama The Eloquent Ji Xiaolan, there is a dialogue about an “imperial grace exam” (enke). Ji Xiaolan sees it as a fair chance for scholars under heaven. The emperor replies that its first purpose is not selecting talent, but “bestowing favor on scholars under heaven,” so that literate men give their hearts to the throne.

Drama dialogue is stylized; it is not pure history. Still, it offers a sharp angle:

The imperial exam was not only selecting talent; it may also have been absorbing and disciplining talent.

Institutions do not only filter people; they shape them. The keju channeled scholars’ intelligence into eight-legged essays, degrees, and official careers — not simply suppressing smart people, but redefining where smart people should apply their smarts.

4. From the exam back to IPO approval

Look again at listing approval, and a similarity appears: when listing status becomes extremely valuable, it also shapes firm behavior. To win a slot, companies adjust themselves to fit review rules.

The keju produced “scholars who can pass exams”; listing approval may produce “companies that can get listed.”

This is not to say the keju was worthless, or that IPO review is unnecessary — societies need talent selection; capital markets need listing screens. The issue is not whether gates exist, but:

When a gate is loaded with too much resource, status, and credit meaning, participants organize their actions around the gate.

That reconnects to Chapter 3’s “implicit guarantee”: when investors feel “if it listed, it was reviewed, so it must be a good company,” that is not a written promise — yet it becomes a market expectation. An implicit guarantee need not come from an explicit pledge; it can come from institutional recognition. The problem is that clearing review is not the same as lasting excellence — just as winning a degree is not the same as governing well.

5. The paradox of institutions: they filter people, and they shape people

Behind these cases sits a shared logic:

Institutions are designed to solve problems; but when their gates become too important, participants make “passing the gate” the goal.

Listing approval shapes how firms present themselves; the keju shapes how scholars spend their intelligence; the gaokao shapes how students understand learning.

Gates themselves are not terrifying. What is terrifying is when people increasingly believe “passing the gate = trustworthy” and “holding the credential = truly excellent” — until the gate replaces the work itself.

That may be my largest takeaway from Chapter 3 of Rigid Bubble:

When the gate becomes the goal, the institution begins to warp. And when clearing the gate is read as institutional endorsement, implicit guarantees grow with it.

By Miaoqiu (reading notes; some arguments drawn from the book)