China's New Trade War Defense Is a Stock Market for Tech Firms
For Balance Medical Technology, selling shares on China’s newest trading venue could fund a 16,000 square-meter facility.
(Bloomberg) -- In a nondescript building in a Beijing suburb, workers stitch bovine and porcine tissue into replacement heart valves for humans. Orders are mounting, and founder Jin Lei is looking to the latest feature of Chinese President Xi Jinping’s financial reform to help him expand.
For Jin’s company, Balance Medical Technology Co., selling shares on China’s newest trading venue could fund a 16,000 square-meter facility with a research center, boosting production eightfold to more than 8,000 valves a year. That would take his 14-year-old business one step closer to Edward Lifesciences Corp., the $36 billion U.S. giant Jin calls his model.
Balance Medical has the smallest revenue among the 119 applicants for the Shanghai technology board that’s poised to start in coming weeks, but Jin’s ambitions play into a larger battle Xi is waging these days. With U.S. President Donald Trump ratcheting up pressure on China via trade tariffs and a crackdown on one of its biggest technology companies, the country finds itself at risk of being shut off from swathes of the global technology supply chain.
As Xi counters by encouraging more homegrown innovation, building out new financing avenues for companies like Jin’s has taken on added significance.
“When Xi said that the country will push for self-innovation, I was stirred,” said Jin, who returned to China in 2001 after studying and doing a research stint in the U.S. “If this trade war persists, those lacking hardcore technology won’t have any good cards to play.”
Trump’s recent move to limit the sale of vital U.S. components to Huawei Technologies Co. -- a company his administration calls a potential risk to national security -- threatens to choke off access to key technologies, undermining China’s goal of becoming a tech superpower.
Credit Suisse Group AG analysts estimate that the U.S. spends in excess of five times more than China in absolute terms on basic research. The tech board “may incubate some great companies of tomorrow,” analysts led by Vincent Chan wrote in a March report.
With the new tech venue promoted at the highest political levels in Beijing, companies traded there also stand to gain support from various regional governments. Following Xi’s announcement of the tech board, local authorities are lining up subsidies and other preferential policies for companies on the venue, according to local media reports.
Jin first heard about the trading venue in November as he watched Xi’s speech on television. At the time, he’d been preparing to apply to list on Shenzhen’s 10-year-old ChiNext board.
He said in an interview that he was heartened to hear of a venue designed to encourage home-grown technology firms like his, and perceived a higher chance of success in winning a listing on the tech board, where regulators have waived restrictions on how companies are priced and offer a more streamlined IPO process.
“For tech startups like us, the status as a tech-board company will help to win more government support,” said Jin.
Balance Medical’s Key 2018 Numbers
| Revenue | 110.6 million yuan |
| Net income | 49.6 million yuan |
| R&D expenses as percentage of revenue | 11.7% |
| Number of employees | 156 |
Any retaliatory Chinese tariffs on Balance Medical’s U.S. rivals would also benefit Jin’s company. Edward Lifesciences, which controls almost 20% of the global market for interventional cardiology according to data compiled by Bloomberg, sells similar heart-valve replacement products and is listed as a competitor on the Balance’s IPO prospectus.
As China and the U.S. trade blows over a widening array of issues, Jin is plotting the next steps to take on a company that makes more revenue in two days than Balance does in a year. He plans to invest more in research and speed up clinical trials for new products.
“We are small today, but if this country is serious about promoting technology and self-innovation, give it five to eight years,” he said. “We can rival the U.S. giants and we’ll be big.”
To contact Bloomberg News staff for this story: Evelyn Yu in Shanghai at yyu263@bloomberg.net;Ludi Wang in Shanghai at lwang191@bloomberg.net;Ken Wang in Beijing at ywang1690@bloomberg.net
To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Jeanette Rodrigues
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With assistance from Bloomberg