Intensified competition with other stock markets leads to revamp

The Shenzhen Stock Exchange, home for the mainland's technology companies and innovative startups, will accelerate the revamping of its listing rules in hopes of retaining high-growth companies in the home market and avoiding losing in the competition for new listings of future technological giants.

The exchange said in its development plan for 2018-20 that it will reform the startup board and will improve the requirements for initial public offerings with the consideration of the profitability and share structures of high-tech and innovative companies.

The statement underscored the country's securities regulator's desire to boost the attractiveness of the startup board in Shenzhen amid the intensified competition among stock exchanges for IPOs in emerging sectors.

The China Securities Regulatory Commission is likely to make major breakthroughs in the listing rules for the startup board in Shenzhen including substantially reducing the profitability requirement on startups and even considering allowing loss-making firms to float shares in the market, said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.

"The current IPO rules are not suitable for China's economic transition, which is led by new emerging sectors and new business models," Dong said.

Dong said the Chinese mainland's regulator should also remove the administrative control on the offering prices and should allow the market to have a greater say in future IPO pricing.

A source close to the CSRC said the regulator will likely use administrative measures to revise the current IPO rules instead of the legislative process of amending the country's Securities Law by the top legislature. The amendment of the law was delayed after the country's stocks experienced a dramatic rout in 2015.

The current stringent requirements on corporate profitability and the ban on stocks with dual voting structures at the mainland's stock exchanges have prompted many technology companies to choose to float shares in overseas markets.

The country's top four technological giants, known as the BATJ for short (Baidu, Alibaba, Tencent and JD) are either listed in the US stock exchange or in the Hong Kong bourse.

The Shenzhen Stock Exchange's move was seen as a response to the new listing rules proposed by its rival, the Hong Kong Stock Exchange, which is expected to accept IPO applications under dual-class share structures by the end of June and will allow bio-tech companies with no profit or revenue to float shares on the bourse.

The move by the Hong Kong Stock Exchange could be a game changer as it will pose a direct challenge to the mainland's stock exchanges, according to the head of IPO business of an international investment bank.