New NASDAQ-style board can offer financial lifeline to innovative firms that drive growth

By Xiao Xin Source:Global Times Published: 2018/11/5 22:13:40

China's announcement on Monday that it will launch a new NASDAQ-style board on the Shanghai Stock Exchange signals a continued push for capital market reforms, which the nation hopes will channel critically needed financing for the businesses that bear the burden of driving the economy's innovative growth.

Still, the timing of the new board's launch needs to be worked out in line with the changing financial landscapes in China and abroad. Wide-ranging measures are also supposed to be in the pipeline to ensure well-functioning capital markets at large.

In a keynote speech at the opening ceremony of the first China International Import Expo in Shanghai, Chinese President Xi Jinping announced China's decision to launch a science and technology innovation board at the Shanghai Stock Exchange and experiment with a registration system for listed companies.

In a statement shortly after the president's announcement, the China Securities Regulatory Commission said that the new board is intended to shore up weak links in the capital markets that are related to technology and innovation. The regulator said that it will come up with differentiated arrangements concerning profitability requirements and shareholding structures, among other aspects, allowing for enhanced tolerance and adaptability for innovative businesses.

This apparently boosts hopes for welcoming back technology companies based in the Chinese mainland that had no choice but to float on overseas markets due to their failure to meet earnings requirements to list onshore. Many overseas-listed mainland companies use so-called variable interest entity structures to bypass foreign ownership limits on some sectors, making greater tolerance for varied shareholding structures a much-needed move to open up the country's capital markets.

The new science and technology innovation board is therefore set to provide a key missing piece in the country's financial reforms, potentially turning these markets into the lifeblood of an innovation-oriented economy.

But the launch of the new board can't be rushed, taking into account global market uncertainties, particularly US stock market corrections amid the Fed's rate hikes, and the still-fragile domestic stock markets.

In a sign of concerns that the new board and a pilot program for a registration-based IPO system might drain money from existing shares, the benchmark Shanghai Composite Index edged down 0.41 percent to close at 2,665.43 points on Monday.

To ensure that the equity market in its entirety won't be overwhelmed by a possible influx of IPOs, adding to woes over an inflated market, a set of measures including stricter delisting rules and regulations to better protect smaller investors' interests must be put in place as fast as possible.

Efforts are also required to clarify the role of the new board in relation to two existing markets - the New Third Board over-the-counter market in Beijing and the ChiNext board in Shenzhen which is widely known as China's version of the NASDAQ. After all, these other markets have been considered to exemplify the country's efforts to ease funding shortages for smaller businesses involved in technology and innovation.

The author is a reporter with the Global Times.


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