At the opening ceremony of the China International Import Expo (CIIE) held recently, Chinese President Xi Jinping announced that China will establish a science and technology innovation board (科创板) on the Shanghai Stock Exchange (SSE) and is currently experimenting with a new registration-based system for initial public offerings (IPOs) as Beijing keeps looking at ways to attract domestic tech listings.
This new board will include innovative hi-tech startups and new economy companies. The new system, different from one that is approval-based, will allow the market to decide the schedule and price of a new stock offering.
The local capital market reacted strongly to the new initiative, with a host of stocks hit their limit up post the announcement. Industry insiders believe the new board and a registration-based system will bring about the following three changes.
First, innovative hi-tech startups will be able to seek domestic capital. Cen Saiyin, VP of Cornerstone Capital, told China Business News that new economy companies will have another option for financing if the required size of revenue before IPO is eased off, or cancelled. It will inject new momentum to the domestic market.
Second, institutional investors will be able to achieve a faster exit. According to CS Richland Asset president Zhu Weiyi, if innovative firms get listed at home market, institutional investors will be able to invest in RMB denominated funds instead of USD funds, which will expand the source of venture capital, a good news for VC institutions.
Third, Chinese capital market will see the shortage of tech startup services get filled. This year, domestic companies, one after another, went public in HKEX and Nasdaq and saw trading volumes there reaching their record high. According to a report of ChinaVenture Research, within the first three quarters of 2018, the funds Chinese stocks raised had exceeded that of last year. It unveils the inadequacy of Chinese capital market in terms of tech startup services, such as lengthy approval procedure and lack of inclusiveness, despite the ChiNext and the New Third board.
China’s current capital markets are three-layered, with A-shares (listed on the main board, SME board, and ChiNext board) on top, the New Third Board in the middle, and regional stock exchanges at the bottom. To set up a new science and technology board will inevitably have an impact on the New Third board and the ChiNext board. But as a follow-up of the Strategic Emerging Industries Board put out in 2015, it may also serve firms in such strategic emerging industries as internet, big data, cloud computing, and biomedicine.
Editor: Elaine Huang & Ben Jiang
