China eyes stock exchange listing reform

BEIJING - China's security regulator is set to reform stock exchange listing in an effort to invigorate the country's capital market and foster the new economy.

Jiang Yang, vice chairman of China Securities Regulatory Commission (CSRC), said the listing mechanism reform was at the top of the regulator's work agenda.

The CSRC will reform the listing mechanism, deepen the reform of the main board and ChiNext board, and give more support to "new technology, new industry, new industry forms and new business models," Wednesday's Securities Daily cited Jiang as saying.

Analysts have said that if implemented, the reform will reverse a trend in recent years in which many Chinese tech firms preferred to list overseas because of more flexible listing rules and access to international investors.

Jiang's remarks came amid a slew of governmental statements that vowed changes to the listing process to grant easier access to emerging and innovative businesses.

As China tries to transition its economic growth model to one that draws strength from innovation, the last thing that the regulator wants to do is to turn away firms in the new economy sector, which has contributed to a growing share of the economy.

However, the country's capital market remains dominated by traditional industries such as property development, finance and industrial materials.

Innovative firms, tech startups in particular, face legal and technical barriers to list on the A-share market, including restrictions on weighted voting rights, or dual-class shares, and mandatory requirements on IPO applicants' profitability.

Currently, companies are required to have a net income for the last three fiscal years and have combined profits of more than 30 million yuan ($4.7 million) during the period in order to list on the main board. The requirements are lower for listing on the ChiNext board, but still challenging for most tech startups.

Scarcity has made stocks of tech firms highly sought-after for investors in the country's capital market.

Qihoo 360, the country's largest internet security company, which once listed on the New York Stock Exchange, returned to the A-share market in late February and witnessed its market value peak at more than 440 billion yuan, seven times more than when it delisted from the US market.

The government should remove these obstacles and grant easier access for innovative companies to raise funds in the country's capital market, said Bao Fan, chairman and CEO of China Renaissance Group, a leading financial institution in the country.

These companies will help build a more open, inclusive and multi-lateral capital market, push forward supply-side structural reform and foster new growth engines, Bao said.

No policy details have been available yet, but Yan Qingmin, also CSRC vice chairman, told Shanghai Securities News that possible changes could include adjusting the mandatory profitability requirements for firms in the new economy sector and making new arrangements for overseas-listed firms to return to the A-share market.

The government will also work on rules to specify the category of the new economy sector, Yan said.