Chinese President Xi Jinping made a surprise announcement on Monday as he unveiled plans to establish a tech and innovation board in Shanghai to help domestic tech start-ups raise capital. The news, among other reactions, stoked fears that the planned new board could divert liquidity from the main board.
But it seems the new tech board won’t compete directly with the main boards in both Shanghai and Shenzhen. The board will be targeting pre-profit companies in specific emerging industries to raise funds, and only institutional investors can subscribe the shares.
According to details unveiled by authorities, the new board will adopt a registration-based IPO system, which would make the listing process more transparent and speedy. Also, the new board is mainly for tech firms that fit national strategy and those that master core technologies.
As “more appropriate and differentiated arrangements” would be applied to candidates’ profitability and shareholding structures, it suggests that pre-profit companies and those with dual-class share structure could be allowed to list on the new board.
Investors would be required to fulfill certain conditions such as asset size, investment experience and risk appetite to participate in the new board. Small and medium investors will be encouraged to participate through mutual funds, implying retail investors might be excluded.
The new tech board will serve as a pilot scheme, testing various new initiatives such as registration-based system, acceptance of offshore companies or firms with variable interest entity (VIE) structure.
As such, any problems from these new rules won’t spillover to the main boards.
So what sort of companies would likely list on the new tech board?
Xi chaired a meeting with entrepreneurs on November 1, inviting founders of 10 private businesses to share their views.
They come from industries like special materials, smart machinery, energy-saving devices, etc. Though most of the entities are little known in the market, the chance to speak in a meeting chaired by Xi is a hint that the industries could make up the first batch of chosen ones.
This article appeared in the Hong Kong Economic Journal on Nov 7
Translation by Julie Zhu
[Chinese version 中文版]
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