China will reform major stock exchanges in the image of the STAR Market following the Nasdaq-style tech board’s success, said Yi Huiman, the head of the China Securities Regulatory Commission to government-affiliated Xinhua news (in Chinese).
Why it matters: Shanghai’s STAR Market has had mixed results in keeping China’s rising tech stars from listing abroad, but Beijing appears determined to widen efforts to attract more capital to domestic tech firms by spreading the reforms across the country.
Details: Under the new measures, stocks will trade without caps on the first day of trading and will be capped at 20% gains or losses on subsequent days.
- The listing process will also be made easier, speeding up a long review process that firms had to go through prior to the STAR Market-led reforms.
- Companies will now only be required to disclose earnings and operations along with the listing application and vouch for the veracity of disclosures.
- According to the South China Morning Post, the first 25 companies to list on the STAR Market are now trading with an average 90% increase in share value.
Context: After tech behemoths like Alibaba opted to list in New York and Hong Kong, the Chinese government decided to set up a stock exchange which was not subsequent to China’s strict rules for stock trading. At the Shanghai Stock Exchange’s Science and Innovation Technology Board, or STAR market, unprofitable companies were allowed to trade in China for the first time.
- Analysts expected the STAR Market to be a “real shake up” to the Hong Kong stock exchange.
- Chinese chipmakers are reportedly hurrying to list on the tech board.
- However, a clear verdict on its success is yet to come. A number of recent initial public offerings on overseas stock exchanges—passenger drone manufacturer Ehang, house-sharing platform Danke Apartments, China’s answer to WeWork Ucommune, manufacturer of crypto mining equipment Canaan, and audio content platform Lizhi —show that many promising young startups prefer to raise capital abroad.
- Analysts are worried that the lax rules encourage speculative trading and overvaluation. Shares of semiconductor company Anji Microlectronics Technology rose 520% on its first day of trading, before closing at 400% of IPO share prices.
- Demand for shares on STAR Market’s first day of trading was 1,800 times more than supply, according to the Wall Street Journal.
- Trading on the STAR Market began on July 22, less than a year after its plan was unveiled by Chinese President Xi Jinping during a trade expo in November 2018. The relaxed regulations for trading on Shanghai’s new tech board were released in March 2019.
- At the market’s debut, nine companies aimed to raise a total of RMB 18.8 billion ($2.7 billion), among them a chipmaker and a telecom company.