China relaxes strict public listing rules, intensifies competition with Nasdaq and Hong Kong

New opportunities for tech startups in the Chinese capital markets.

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China relaxes strict public listing rules, intensifies competition with Nasdaq and Hong Kong

Just two months after Chinese President Xi Jinping, in a surprise announcement, said he would establish a new Nasdaq-style start-up board in Shanghai, the country has released a draft detailing the new rules for the board and is now open for consultation until the end of this month.

This new board is looking to abolish the requirement for IPO candidates to be profitable. A tech committee is being formed to decide on the new standards. Other changes proposed include a US-style registration system, and accepting companies with weighted voting rights (WVR) – a system that can give more power to the firm’s founders and small shareholder groups. There is also a proposal to limit the volatility of new board stocks to 20% within a day as opposed to the general 10% cap.

Partly due to China’s currently strict IPO regulations, Chinese capital-seeking tech mammoths have been heading to the US and Hong Kong to go public. Hong Kong-listed Meituan-Dianping, Hong Kong-listed Xiaomi, and the Nasdaq-listed Pinduoduo are some notable examples where domestic investors have missed out on potential gains. Thus, this new move could be a game-changer for China’s tech scene, attracting the country’s own tech giants to list at home.

This isn’t China’s first attempt to create opportunities in the domestic capital market. KrASIA reported last year of China’s trial introduction of new Chinese Depository Receipts (CDR) to win back some of the most valuable overseas-listed tech giants.

The CDR plan didn’t work well. Eventually, we saw Hong Kong-listed Xiaomi putting its CDR listing plan on hold; Alibaba being next in line.

If the new public listing rules in Shanghai is well received by Chinese tech startups, it will likely put pressure on the Hong Kong Stock Exchange (HKEx) which relies heavily on the public debuts of Chinese tech companies and is often seen as the international gateway between China and the rest of the world.

By offering the country’s tech companies an avenue to easier funding option by sidestepping complex IPO hurdles, the country is set to draw the next generation of Chinese tech giants to list in the Middle Kingdom amidst the US curbs on Chinese tech firms.

It could also serve as an important step forward towards China’s “Made in China 2025” vision: to pivot away from the manufacturing infrastructure and labor market to technology innovation.

Editor: Nadine Freischlad