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China’s securities regulator has introduced new guidelines aimed at further reforming the ChiNext technology board on the Shenzhen Stock Exchange. These new rules now permit companies that have yet to turn a profit to apply for an initial public offering (IPO) on the board.
Unprofitable companies operating in emerging industries with an estimated market value of at least 3 billion yuan (approximately $439 million), last year’s operating revenues of no less than 200 million yuan ($29.3 million), and an average annual growth rate in operating revenue exceeding 30% over the past three years are now eligible to file for an IPO.
Additionally, unprofitable firms in future-oriented industries may also qualify if they meet certain criteria: a minimum market capitalization of 4 billion yuan (around $586 million), at least 200 million yuan in operating revenue in the previous year, research and development investments of no less than 100 million yuan over the past three years, and R&D expenditures accounting for over 15% of their operating revenue during that period.
The scope of the reforms has exceeded expectations, according to Tian Xuan, Dean of Guanghua School of Management at Peking University. He explained that the first criterion aligns with the rapid growth typical of emerging industries, enabling early-stage tech companies with high growth potential but small revenues to be identified. The second criterion emphasizes long-term strategic investments, allowing companies with substantial R&D budgets and technological barriers but not yet profitable to access the market.
Industry experts noted that the combined criteria of market capitalization, operating revenue, growth, and R&D investment align closely with the characteristics of companies in emerging and future sectors. Some firms preparing for or already listed in Hong Kong that meet certain criteria might consider transitioning back to the mainland stock market.
However, caution is advised against expecting a sudden spike in IPO applications, as going public involves extensive preparations, including governance and financial compliance, according to Yang Yusong, General Manager of Southwest Securities. He suggested that while the risks of a broad valuation bubble are limited, overvaluation remains a concern, urging investors to evaluate companies comprehensively.
Unlike the STAR Market on the Shanghai Stock Exchange, which involves different trading mechanisms for high-tech companies, those meeting the new criteria on the ChiNext board will trade under the standard framework but will be marked with a “U” to denote their status.
The new rules also allow local governments to share information about companies planning to list on the ChiNext board with the China Securities Regulatory Commission and the Shenzhen Stock Exchange. However, such information sharing is intended as an advisory step rather than a mandatory requirement for listing.
This approach aims to advance IPO preparation and standards by involving professional intermediaries earlier in the process, ultimately improving project quality, review efficiency, and better integrating regional industries with capital markets, according to industry experts.
It was also emphasized that all companies should adhere to a market-driven screening process, and a dynamic management and exit mechanism ought to be established and refined to ensure sustainable development for listed firms.
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