Chinese regulators are planning to overhaul rules to revive interest from domestic firms listed on overseas stock markets including a significantly lower market-capitalization threshold and marked easing of the country’s strict capital controls, according to the Wall Street Journal.

Why it matters: The move is part of China’s ongoing efforts to lure tech companies to list domestically including making the initial public offering (IPOs) process less painful, as well as new draft rules from last week which will allow foreign companies to list on its stock exchanges.

  • The Shanghai Stock Exchange’s tech bourse, STAR Market, which opened for trading in July, adopted a registration-based IPO system where companies, not regulators, decide pricing and valuations, and loss-making companies are allowed to list.
  • The rules reportedly being mulled over this week go further than last week’s draft rules. They will cover both Chinese companies listed on overseas exchanges and startups incorporated offshore. The new rules will apply to the STAR Market, said the report.

Details: The Shanghai Stock Exchange and the China Securities Regulatory Commission (CARC) could unveil the new rules for public consultation as soon as in the next few days, people familiar with the matter told the WSJ.

  • Under the new system, foreign companies and Chinese businesses that are incorporated abroad will be able to list in mainland China, said the people.
  • A key initiative is a lowering of the market-capitalization threshold for overseas-listed companies to RMB 100 billion (around $14.3 billion) or less, halving the threshold set last year, which “kept a lot of quality companies out, and regulators want to change that,” said one of the people.
  • The rules will ease limitations on existing shareholders’ ability to sell their shares such as the long lock-up period for investors and the country’s strict capital controls which hampered investors from moving their money abroad, said the person, without providing details.
  • The lock-up period for controlling shareholders and actual controllers of a STAR Market-listed company is 36 months while that of ordinary shareholders is 12 months, according to Xinhua News Agency (in Chinese). Whereas the period for US IPOs usually ranges from 90 to 180 days after the date of listing.

Context: Signaling that opening the country’s capital market is a priority, China has made some radical changes to its stock markets recently.

  • Yi Huiman, the head of the CSRC, said earlier this month that China will reform major stock exchanges in the image of the STAR Market to list floatation restrictions for new stocks on the first day of trading and make the listing process easier for companies.
  • The move came as a wave of Chinese tech companies sought to issue shares in overseas stock exchanges in the past month, with at least 10 filing applications for US IPOs.

Wei Sheng

Writing about semiconductors and telecommunications.

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