Lawmakers in Shenzhen, a high-tech manufacturing hub in southeast China, passed a rule Wednesday allowing companies to incorporate with a dual-class share structure as the city seeks to attract more tech companies to its economy and stock exchange.

Why it matters: The move followed just days after the Chinext startup board on the Shenzhen Stock Exchange welcomed its first batch of companies subject to a new, Nasdaq-style initial public offering process—part of China’s efforts to lure tech companies to list at home.

Details: The Shenzhen Municipal People’s Congress passed Wednesday a rule aimed at promoting technology innovation, according to its website (in Chinese). The new rule allows companies to set up weighted voting rights (WVR) share structures when registering a new company in the city. It also allows companies with WVR to go public on the Shenzhen Stock Exchange.

  • Shareholders with extra voting rights must be company founders or those who have made significant contributions to the company’s technology and business development, according to the new rule.
  • China’s current corporate law requires companies to give shareholders voting rights based on their holdings. Companies usually have to bypass the requirement by setting up variable interest entity (VIE) structures overseas or by drawing up extra agreements between shareholders.

Context: Technology companies tend to list with a two-pronged share structure, with founders and management granted WVR in order to maintain control over the company after it goes public. Tech companies including Facebook, Google parent Alphabet, and China’s, and Xiaomi have all adopted dual-class share structures for their listings in the US and Hong Kong.

  • In January, Chinese cloud service provider Ucloud was the first company to list onshore in China with WVR, raising RMB 1.9 billion (around $276 million) on the Nasdaq-style STAR Market tech board in Shanghai.
  • The Hong Kong stock exchange changed its rules in April 2018 permitting companies to list with shares carrying WVR held by individuals. Chinese smartphone maker Xiaomi was the first company to list under this provision.
  • China’s efforts to broaden IPO reforms seem to be paying off as the country’s tech unicorns—tech startups with a market value exceeding $1 billion—such as fintech giant Ant Group are in the pipeline to list on mainland stock exchanges. It also comes at a time when Chinese tech firms face increasing scrutiny in the US and risk of delisting from US markets.

Writing about semiconductors and telecommunications.