China's STAR board promotes innovative, inclusive market

One year after its launch in Shanghai, China's Nasdaq-style sci-tech innovation board, also known as the STAR market, has showcased its exemplary role in facilitating initial public offerings (IPOs) for enterprises with core technologies.

An attendee takes a snapshot at the launch ceremony of the STAR Market in Shanghai. [Photo/China Daily]

"Piloting a registration-based IPO system, the sci-tech innovation board has weathered the tests from the market and seen a good start," said Li Gang, an official with the China Securities Regulatory Commission (CSRC), at a press conference Thursday.

The STAR market, inaugurated in June last year, was designed to support companies in the high-tech and strategic emerging sectors, easing listing criteria while adopting higher requirements for information disclosure.

As of June 5, prices of stocks of the 106 listed companies on the board were up 159 percent of the initial offering prices on average, with the number of investors granted transaction permission on the board reaching 5.27 million.

Demonstration effect

Connecting the capital market with technological innovation-based enterprises in the fast-growth stage, the board has already raised more than 120 billion yuan (about US$17 billion) for the listed companies, according to Li.

Meanwhile, the STAR-listed companies showed a firm commitment to pushing forward innovation, with the average investment in research and development (R&D) taking up about 12 percent of their revenues in 2019, 10 percentage points higher than the national average.

Big investment in R&D paid off on both the business and innovation sides. Net profits of the STAR-listed firms in 2019 surged 24.5 percent year on year to 17.73 billion yuan, and the number of newly-added patents from those companies topped 2,500, more than 1,100 of which were patents for inventions last year, data from the CSRC shows.

To speed up the transformation from scientific and technological achievements to productivity, while fostering innovation-driven economic development, the board adopted a registration-based system featuring five different sets of standards for listing, creating an inclusive market.

"The sci-tech innovation board eased the financial restriction for the listings, helping tech firms with innovative genes draw the driving force from the capital market," said Gao Qingping, secretary of the board of Suzhou Zelgen Biopharmaceuticals, a company that appeared on the board on Jan. 23, ending the history of loss-making enterprises unable to get listed in the A-share market.

ChiNext, China's Nasdaq-style board for growth enterprises, will also replace its approval-based IPO system with a registration-based one, which analysts say is a signal that the sci-tech innovation board has begun to deliver its demonstration effect.

Reach for the stars

Completing a productive year, the sci-tech innovation board is expected to bring a bigger platform and more inspiration for innovation to enterprises, while bolstering the productivity of technological innovation, said the Shanghai Stock Exchange (SSE).

As part of the efforts to deepen the reform, the board has shortened enterprises' wait time for board review from 65 days to 47 days, and cut the average number of questions for inquiries from 47.4 to 30.2.

Less time and fewer questions are the result of consistent efforts on improving efficiency, said the SSE, stressing the importance of ensuring the quality of inquiries while providing effective service for investors.

Next, the CSRC will continue to boost the institutional innovation of the registration-based IPO system piloted at the STAR market, enhance the transparency of the approval process and steadily apply the registration-based IPO system to all markets, said Li.

In addition, the threshold of domestic listing for innovative red-chip companies, or companies registered overseas but operating in the Chinese mainland, was adjusted by the CSRC recently, paving the way for those companies who are willing to list on domestic markets, including the STAR market.

By the end of May, China had 3,868 listed companies with a total market value of 59.61 trillion yuan, and remained the world's second-largest stock market, according to Yan Qingmin, vice chairman of the CSRC, at a meeting.

"The successful operation of the STAR market will provide valuable reference to the application of the registration-based IPO system in ChiNext and even the main boards, strengthening market supervision and improving global investors' confidence in China's capital market," said Zhang Liqing, director of Center for International Finance Studies with Central University of Finance and Economics.