China Reopens IPO Path for High-Quality but Unprofitable Tech Startups
Chinese regulators are signaling a shift in policy, paving the way for high-quality technology startups that are not yet profitable to access the public market. The move aims to foster innovation and support the development of key sectors.
According to sources, the China Securities Regulatory Commission (CSRC), the country’s main securities regulator, is proposing the resumption of approvals for the fifth set of STAR Market listing standards. This would allow promising but unprofitable tech companies to list on the Nasdaq-style innovation board.
The fifth set of STAR Market standards permits unprofitable enterprises with a market value of at least CNY4 billion (USD552 million) and significant technological innovation capabilities to go public. However, this path has remained largely unused since June 2023, when Genrix Biopharmaceutical was listed. This pause was largely due to increased regulatory scrutiny aimed at preventing unhealthy listings.
Prior to this meeting, Wu Qing, chairman of the CSRC, had expressed support for a more relaxed regulatory stance to facilitate the fundraising of high-potential, unprofitable startups.
Fostering Innovation
Tian Huafeng, president of GP Hi-Tech Capital, highlighted that China’s long-term goals center on cultivating new quality productive forces and supporting high-quality development through scientific and technological innovation. He added that the introduction of such exit channels could enhance early-stage investors’ confidence, encourage patient capital, and smooth the innovation cycle.
Tian Lihui, dean of the Institute of Financial Development at Tianjin’s Nankai University, noted the significance of international competition, national strategies, and the capital market in driving startup listings. He stated that China needs to cultivate domestic leaders in semiconductors and artificial intelligence, and that supporting IPOs of unprofitable enterprises could help address their early-stage financing challenges.
Emphasizing the definition of “high quality,” Tian from GP Hi-Tech Capital noted the importance of a high level of innovation, technological content, technical barriers, and significant growth potential. Meanwhile, Tian from Nankai University stressed that these companies should possess independent intellectual property rights, internationally leading technologies, clear commercialization paths, and strong teams.
Relaxing the gatekeeping process is expected to boost confidence among equity investment institutions. Tian Lihui projects an increase in both the number and quality and diversity of initial public offerings (IPOs) this year, particularly in sectors such as semiconductors, new energy, and AI. Conversely, the portion of IPOs from consumer goods and traditional manufacturing enterprises is expected to decrease.
An executive from an equity investment institution predicted that China could see between 150 and 200 IPOs this year, reversing the downturn of 100 new listings in 2024. During the previous year, startups raised CNY67.4 billion (USD9.3 billion), a decrease of approximately 81 percent from 2023.
