China to Create Stock Venue in Shanghai for High-Tech Companies

(Bloomberg) -- China will set up a new trading venue in Shanghai that will make it easier for high-tech companies to access funding, as President Xi Jinping vows more opening measures to boost the world’s second-largest economy.

The Shanghai Stock Exchange will also start a pilot program on a registration-based system of initial public offerings, Xi said at the opening ceremony of the China International Import Expo on Monday, without elaborating on either initiative.

China is expanding efforts to keep its most promising companies from going public in Hong Kong or the U.S. Officials were studying a possible new trading venue in Shanghai that would have lower thresholds for biotechnology and high-tech firms, people with knowledge of the matter said in June. The new market, which might waive earnings and revenue requirements, would operate at the Shanghai Stock Exchange, and could open as early as next year, the people said at the time.

“There was little or no anticipation of something like this, and so the reaction in the community so far is quite muted or calm,” said Tom Wang, portfolio manager at Shenzhen Qianhai Youjoy Capital Management. “There are no details on the supporting policies, but to take it at face value, it may mean allowing loss-making companies to go public.”

The China Securities Regulatory Commission will move ahead with a trial for the high-tech-focused venue at a measured pace, and will encourage smaller investors to participate via mutual funds, according to a statement from the regulator after Xi’s speech. Companies seeking to list will be subject to different profitability and ownership requirements compared with the existing stock exchanges, the CSRC said.

Policy makers are looking at ways to boost China’s stock market, which in recent years has seen businesses worth more than $1 trillion go public on overseas exchanges. Regulators have drawn up rules for Chinese depositary receipts that would allow companies such as Alibaba Group Holding Ltd. to list shares domestically, and efforts are underway to encourage homegrown large tech firms, known as unicorns, to debut on existing venues in Shanghai or Shenzhen.

Biotech firms without a track record of revenue or profits can list in Hong Kong under rules that took effect in April, 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.

“In my decades trading in China’s stock market, there’s a new board every three-to-five years,” Hou Anyang, fund manager at Frontsea Asset Management in Shenzhen. “There’s nothing special about this.”

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net

©2018 Bloomberg L.P.

With assistance from Editorial Board