China’s new stock board dedicated to technology startups begins trading on Monday (July 22)—and might be China’s boldest attempt yet to reform its capital markets.
The Shanghai Stock Exchange’s Science and Technology Innovation Board, dubbed “STAR Market,” comes less less than a year after president Xi Jinping made a surprise announcement (in Chinese) last November on the decision to launch the board. In a departure from rules at the two exchanges in Shanghai and Shenzhen, the new board grants companies and investors greater freedom on IPO pricing and in the listing process. It’s seen as step in Beijing’s determination to persuade its next breakout tech champion to list at home. Alibaba, which had the world’s biggest IPO ever thanks to its massive e-commerce business, and Tencent, China’s social media giant, are listed in the US and Hong Kong, respectively.
Investors should expect more volatility on the new board, which sets no daily price limits in the first five days of a company’s debut, after which there will be a 20% daily limit for share movements in either direction, although trading can be suspended for 10 minutes for extreme movements in the first five trading days. Currently, there is a 44% limit on price gains on debut and a 10% limit for both gains and losses afterwards. It’s also the first time companies that have yet to make a profit—a situation common for many tech darlings—can list in China. Regulators have previously required Chinese companies to have at least three consecutive years of profits, a threshold that has prompted some aspiring startups seeking capital to list elsewhere.