Postal Savings Bank of China Chairman Li Guohua (L) celebrates with Executive Director and President Lv Jiajin during the listing of the bank, the world's biggest initial public offering in two years, at the Hong Kong Stock Exchange in Hong Kong, China September 28, 2016. REUTERS/Bobby Yip

HONG KONG (Reuters Breakingviews) - China’s biggest market debut this year is also its most disappointing. Postal Savings Bank of China shares opened just 1.8% higher from their offer price in Shanghai on Tuesday morning. The poor reception could make it harder for peers to recapitalise.

Extravagant first-day trading pops in China are more of a rule than exception, thanks to tight regulatory control of supply, pace and pricing of initial public offerings. Between 2014 and 2018 every single mainland debut hit the 44% maximum rise allowed on the first day, data from Dealogic show. Retail tranches are generally oversubscribed thousands of times.

Enthusiasm for PSBC’s $4 billion IPO – China’s largest in four years – was weak, however. Rickety balance sheets among smaller lenders – and the expectation that larger institutions like PSBC might be forced to rescue them – have dampened market sentiment. As a result, financial-sector listings have become exceptions to the 44% pop this year. Just last week, some investors backed out of the PSBC offering, forcing bookrunners to underwrite 3% of the deal.

The bank, with its retail and small business focus, has its attractions. But Beijing’s unofficial rule that state-owned enterprises cannot debut below book value caused a valuation anomaly. Larger and stronger peers like the $282 billion Industrial and Commercial Bank of China, for example, trades in Shanghai at 0.8 times. This evades accusations that the state has mismanaged the people’s assets, but effectively ensures dismal secondary-market performance. Shares of recently listed Zheshang Bank and Chongqing Rural Commercial Bank have dipped below their offer prices.

PSBC Chairman Zhang Jinliang took out a lot of insurance to get his sale over the line. Strategic investors, including state-backed pension funds, made up 40% of the offering and are subject to a one-year lock-up. The listing is the first in nearly a decade to include a green-shoe option that lets underwriters stabilise the share price. The bank’s parent has also committed to increasing its stake over time.

UBS analysts estimated last year that Chinese banks might need 2.8 trillion yuan of additional capital. PSBC’s lackluster flotation won’t make it any easier to shore up balance sheets elsewhere.