China Weighs New High-Tech Stock Venue in Battle With Hong Kong

(Bloomberg) -- China is expanding efforts to keep its most promising companies from going public in Hong Kong or the U.S., with officials studying a new trading venue in Shanghai that would have lower thresholds for biotechnology and high-tech firms, people with knowledge of the matter said.

Government entities including the China Securities Regulatory Commission and Ministry of Science and Technology are studying the proposal, said the people, who asked not to be named discussing private information. The new market, which might waive earnings and revenue requirements, would operate at the Shanghai Stock Exchange, the people said.

The talks are the latest example of Chinese authorities looking at ways to boost the domestic market, which has in recent years seen businesses worth more than $1 trillion head to overseas exchanges. Regulators are drawing up rules for Chinese depositary receipts that would allow companies such as Alibaba Group Holding Ltd. to list shares onshore, and efforts are underway to encourage homegrown large tech firms, known as unicorns, to debut in Shanghai or Shenzhen.

China’s biotech and high-tech venue could open as early as next year, according to the people. The market may have minimum investor thresholds to prevent some individuals from investing in risky startups, they said. Officials are concerned that new rules in Hong Kong that dropped revenue and profit requirements for biotech companies could lure away such businesses.

Biotech firms without a track record of revenue or profits can list in Hong Kong under rules that took effect in April. The change is part of a broader effort by Hong Kong Exchanges & Clearing Ltd. to attract technology-focused firms and compete head-to-head with U.S. markets for initial public offerings. Goldman Sachs Group Inc.-backed Ascletis Pharma Inc. was the first biotech company to apply for a listing under the new regime.

Spending Rise

China spent nearly $113 billion on medicine in 2017, and the number is expected to be as high as $175 billion by 2022, according to Iqvia Holdings Inc., a research firm. The government has removed regulatory barriers to biotech innovation and highlighted the sector in its ‘Made in China 2025’ blueprint.

Investors and entrepreneurs have rushed into the field in recent years and many startups are planning to take advantage of Hong Kong’s rule changes. In the U.S., Nasdaq-listed Chinese biotech firms have surged over the past year: Hutchison China MediTech Ltd. had risen about 38 percent as of June 4, BeiGene Ltd. gained nearly 400 percent and Zai Lab Ltd. increased more than 32 percent since its IPO in 2017.

Hong Kong investors have also shown an appetite for promising biotech assets from the mainland. Nanjing-based Genscript Biotech Corp. has jumped 688 percent in the past year on the potential of an experimental cancer therapy that engineers a patient’s immune cells to fight tumors.

©2018 Bloomberg L.P.