ChiNext rises after approval of IPO reform procedure

China’s NASDAQ-like board ChiNext closed higher on Tuesday after the securities regulator approved a trial of the registration-based IPO system at the start-up board in Shenzhen, South China’s Guangdong Province, about one year after introducing the system on the science and technology innovation board (STAR), which also focuses on high-tech industries.

The reform will create a more accommodative environment for high-tech and innovative companies by lowering their IPO thresholds and enhancing their financial status, experts said, with some predicting the registration-based IPO system might be applied to the main board in 2021.

On Tuesday, the ChiNext board opened sharply lower but soon recovered to close 0.6 percent higher at 2,030.72 points. The Shanghai Composite Index slid 0.19 percent while the Shenzhen Component Index edged up 0.47 percent.

According to guidelines for the new IPO system, which is now open for public comment, companies wishing to list on the board must have earnings of at least 50 million yuan ($7.07 million) in the past two years or an expected market capitalization of at least 1 billion yuan. They must also have been profitable and generated revenue of at least 100 million yuan in the latest year.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, called the reforms “big progress” that would lead the A-share market to embrace emerging industries.

“The reform will be more inclusive for Chinese high-tech and innovative companies, such as allowing loss-making high-tech companies to float on the board,” he told the Global Times.

According to Dong, the reform is in line with China’s new securities law, which took effect on March 1 and prescribed the registration-based IPO reform to replace the current approval regulatory framework, which will be the trend for the domestic market in general.