China’s New Stock Exchange

Key fact: China launched its first Shanghai-based, Nasdaq-style stock exchange for tech companies on 22 July. The first 25 companies listed on the market gained an average 140% the day of the debut.

What caused this? The STAR Market is part of President Xi Xinping’s plan to spur economic growth and make China a global technology leader.

Bigger picture: STAR comes as China is locked in a protracted trade war with the US and seeks to further implement supply-side reforms.

The recently-launched Science and Technology Innovation Board, or STAR Market, is part of China’s reform initiatives aimed at supporting market financing and homegrown tech companies. To that end, the Chinese government is experimenting regulation with loosening its grip on mainland equity markets. Companies do not require approval by the regulator to list on the exchange, while startups and firms that have not recorded a profit will be allowed to float. The US-style exchange aims at incentivizing Chinese firms to stay in China instead of listing in New York or Hong Kong. The protracted trade war with the US has increased China’s determination to build resilient capital markets and support national tech giants.

STAR Market was ordered into existence by Chinese President Xi Jinping in November 2018. It is aimed at helping Beijing sustain economic growth by funding technological innovation rather than through massive infrastructure spending and debt. The government has made capital account opening a key priority in the country’s reform process. China’s regulators have spent the past eight months preparing the ground for the launch. The 25 STAR Market debutants raised a combined $5.4 billion on 22 July and hail from strategic innovative sectors such as biotechnology, construction, chipmaking or artificial intelligence. However, some restrictions will be in place on investors. Chinese traders require two years of experience and at least $103,000 in their trading accounts to access the exchange and a 20% cap on price rises and falls per day will be implemented. Meanwhile, Nasdaq will remain attractive for Chinese companies as 17 listings have already been made since January.

Supply-side reforms: series of policies aimed at improving a country’s productive potential, including the performance of firms.

Capital account: One of two primary components of the balance of payments, which reflects the net change in ownership of national assets.

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