China’s new innovation stock board must block fake, unproven technologies

By When Sheng Source:Global Times Published: 2019/2/4 12:39:30

China’s stock market authorities have moved to solicit public opinion on a set of newly-revealed rules to manage the country’s maiden technology and innovation board, at the Shanghai Stock Exchange. The government aims to shore up the country’s sustainable economic growth, in the future, by facilitating the fund-raising ability of a rising number of technology start-ups. 

The new board, under the auspices of the country’s top leadership, is expected to be officially launched in late June or early July. 

Many of the detailed guidelines for listing requirements and trading rules – made public on January 30 – are so creative and even ground-breaking that led some market watchers to claim the new board is likely to compete with the established bourses in Hong Kong and New York, to lure promising tech ventures or the so-called “unicorns.” 

A glimpse into the rules publicized by the China Securities Regulatory Commission, the watchdog of the stock market, details, among many changes, lowered thresholds for IPOs of high-tech companies. Unprofitable ventures which have a minimum of 300 million yuan ($44.8 million) of sales in the previous year will be qualified to file an IPO application. Until today, loss-making companies are barred from raising funds on China’s two main stock bourses in Shanghai and Shenzhen. 

Also, pre-revenue biotech enterprises which have a market value of no less than 4 billion yuan are also qualified to apply under the new rules, provided IPO applicants obtain licenses from China’s national drug administrative body. 

And, the shareholding structure of future IPOs on the board could be very flexible. Many technology start-ups that are heavily funded by venture capital have adopted a special equity design of "shares with different rights" in their initial stage of entrepreneurship, which would normally be an obstacle to their listing. Now, however, according to the new rules, these enterprises will be eligible for IPOs on the new board. 

The drastic opening-up of the rules, a registration-based IPO arrangement plus a very flexible trading system, according to market watchers, are designed to attract more innovative technology businesses to list on the board. However, the opening-up of the rules are not risk-free and could lead to ineligible companies making up their business, submitting fraudulent documents or information in order to get listed.

And, the increase of the daily trading limit for a single trading day – from the previous 10 percent  maximum daily movement to 20 percent under the new rules – may put investors in particular peril, and individual investors will become all the more vulnerable to extreme price moves, when trading on the new board. 

In fact, the truthfulness of disclosed information by the listed companies on the new board is fundamentally important for investors. Securities administrators need to pay detailed attention to the quality of listed firms – timely and sufficient information disclosure of the firms’ business operations and their technology research and development – in order to contain the investors’ enthusiasm and to stimulate the market’s vitality. 

Although the Shanghai Stock Exchange is required to review the IPO candidates under the new listing rules, the China Securities Regulatory Commission should maintain responsibility to prevent fake or unproven technologies such as blockchain businesses or internet-based platforms such as bike-sharing or e-ticketing services, from coming to the new board. 

Only those ventures that have core competitive technologies including quantum computing, crucial software design, state-of-the-art chipset production, core AI exploration, and genuine pharmaceutical drug development are eligible for coming to the new board – because the future of China’s economic competitiveness is counting on them. 

The author is an editor with the Global Times.


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