China Fast-Tracks ChiNext Reforms to Attract Tech Start-ups from Shanghai to New York

Elroy Mariano

Back in late April, China kicked off a reform to fast track initial public offerings (IPOs) on Shenzhen’s start-up board ChiNext. The aggressive move by Beijing is designed to accelerate capital market structuring to reinvigorate an economy ravaged by coronavirus. The scheme to launch a U.S.-style, registration-based IPO system on […]

Back in late April, China kicked off a reform to fast track initial public offerings (IPOs) on Shenzhen’s start-up board ChiNext. The aggressive move by Beijing is designed to accelerate capital market structuring to reinvigorate an economy ravaged by coronavirus.

The scheme to launch a U.S.-style, registration-based IPO system on ChiNext was approved during a meeting overseen by President Xi Jinping, who stressed the need to counter economic headwinds with structural reforms, state broadcaster CCTV said.

China stepped up efforts to channel much-needed capital into virus-hit companies and innovative start-ups as Beijing battles an economic slump and competes for technological supremacy with the United States, Reuters said.

Reforming the ChiNext is a key step toward building “a disciplined, transparent, open, vibrant, and resilient capital market,” CCTV reported. It did not give a timeline for the new regime to be adopted.

Shenzhen’s ChiNext Challenges Shanghai, Adds Fuel to ‘Technology War’ with US

Well time certainly does fly because in less than four months, companies are already prepared to list on the start-up board ChiNext under a new U.S.-style IPO system on Monday. China’s Shenzhen will officially challenge Shanghai for tech listings, while adding fuel to a “technology war” with the United States.

Eighteen companies will begin trading on the NASDAQ-style start up board on Monday in a first round of listings. This comes after months of reforms aimed at fast-trading initial public offerings and boosting financing for tech firms as the United States and China fight for global tech leadership.

Based on Shanghai’s year-old STAR Market, the broadening IPO reform will help strengthen the appeal of China’s capital markets at a time when Chinese tech firms face growing U.S. scrutiny and risk of being delisted from U.S. markets, according to Reuters.

The reform “will create very strong competitive forces between the two markets in attracting listing candidates,” said Wilson Chow, TMT industry leader at PwC Global, referring to the Shenzhen and Shanghai markets.

It could also contribute to a decoupling between the United States and China in areas of technology development, with potential repercussions for capital markets and the telecommunication and software sectors, he said.

“We may see a megatrend of polarization of technology systems or use their own equipment, while China and China-friendly countries can create their own standards instead of a unified one.”

It’s Not a Risk Free Venture

Under the new IPO rules, the Shenzhen exchange will vet IPO applications based on disclosure requirements, and companies wanting to go public no longer need examination form the China Securities Regulatory Commission.

ChiNext shares will also be allowed to rise or fall up to 20% in a session, compared with 10% previously, giving the more than 800 stocks currently listed on ChiNext more room to trade.

Yang Tingwu, vice general manager at hedge fund Tongheng Investment, said he worried the changes would further inflate China’s “very big” technology bubble.

Others worry looser regulations could come with risks.

“A lot of alternate exchanges struggle, as lower standards tend to attract more fraudulent activities,” said Brian Bandsma, New York-based portfolio manager at Vontobel Asset Management.

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