Chinese regulators have just approved a new tech-heavy board of 25 companies for the STAR Market. This new STAR Market is modeled on the U.S.-based NASDAQ composite reflecting the ruling Communist Party’s desire to keep private capital within its own country. It allows mid-sized Chinese investors to invest in Chinese tech companies that until recently would have been listed on Wall Street, London Stock Exchange or Hong Kong Stock Exchange.
The STAR Market was being planned before the China/US tariff war instigated by President Donald Trump who complained that China was both stealing American corporate intellectual property and pressuring them to turn the information over “voluntarily.” We sense that since the trade war erupted, the STAR Market had been fast tracked, as it will raise funding for technology companies that often complete against US companies. This will give Chinese companies a fundraising channel for scientific and technological research. China’s chief securities regulator Yi Huiman claimed “the new stock board is a pilot program, to try out new practices before implementation elsewhere.”
This is the third new market launch in ten years and helps Beijing’s general increasing push to enlarge its own domestic financial system. Beijing wants to keep its best companies listed at home. The country has started some of the world’s largest and fastest growing technology companies, but until today almost all have chosen to list overseas or Hong Kong.
The new stock board has minimal opportunity for foreign participation; it is designed as a high-profile pilot program aimed at domestic investors.
Here are some of the listed advantages:
- Allowing some companies of a certain size to list before they have turned a profit.
- Making it easier for a company to go public by relying on a registration, rather than waiting for regulator approval.
- Requiring individual investors to have assets of at least 500,000 yuan ($72,655) that can be invested, and two years of securities trading experience.
“What we are heading towards is a full confrontation,” said James Early, CEO of investment at Stansberry China. “Can’t have a free market and a totally controlled market at the same time. (We’re) getting closer to learn(ing) about the reality of a command economy.”
China currently has the world’s second largest stock trading equity market, just behind the U.S. and ahead of London. This should increase foreign capital into mainland Chinese. China’s stock market, with is updated versions, has existed for less than three decades, while the New York Stock Exchange has a history reaching back over 200 years.