Promoting High-Tech Innovations through Capital Markets Law Reform: Deciphering the Sci-Tech Innovation Board of the Shanghai Stock Exchange

Abstract

This paper introduces and analyses China’s latest reform of capital markets law in light of its recent launch of the sci-tech innovation board (star market) to facilitate the fundraising of technological and innovative businesses. It evaluates the functions and justifications for the star market, and assesses the latest regulatory frameworks including registration-based IPOs, listing standards, information disclosure, and investor suitability. The Sci-tech innovation board has been the latest regulatory experiment in China’s capital market to facilitate fundraising for high-tech enterprises. China is now the largest patent-filing country globally making 1,381,594 patent applications in 2017. It is trying to become a global leader in areas like artificial intelligence, new energy, high-speed trains, and biopharmaceutics. The Sci-tech innovation board will increase Shanghai’s competitiveness as an international financial centre by attracting more tech businesses to obtain a listing in China’s economic heartland. Shanghai is said to become a top financial centre in the 2020s rivalling London, New York, Hong Kong, and Singapore.The star market will spearhead China’s reform of securities regulations as it promotes market efficiency and reduces government invention in the country’s heavily regulated capital markets. The star market is implementing a registration-based IPO regime which streamlines the share offering process. While loosening the listing standards to allow certain loss-making tech companies with dual-class shares and VIE structures to raise capital publicly in China, the new regime has introduced stricter rules regarding post-IPO information disclosure obligations and an investor suitability test to offer better protection for retail investors.

Keywords: China, Chinese Economy, Stock Market, Capital Market Law, Securities Regulation, Securities Law, Sci-Tech Innovation Board, Star Market, IPO, Initial Public Offering, Law and Technology, Law and Finance, Shanghai International Financial Centre, Registration-Based IPO