Regulatory Shackles Lead to Major Withdrawal of Chinese Tech Companies from Listings

126 Companies Delisted from Kechuang Board

Chinese tech companies that were planning to list on the STAR Market, China's equivalent of Nasdaq, are canceling their listing plans one after another. The sluggish stock market and stringent government regulations have become obstacles to the listing of tech companies.

According to major foreign media on the 29th (local time), 126 companies have withdrawn their initial public offering (IPO) plans on the STAR Market this year. This number exceeds the total for the four years since the STAR Market was established in 2019.

Foreign media explained that due to the stock market freezing caused by a real estate-driven economic downturn and the difficulty in properly recognizing corporate value amid strengthened government regulations, more companies are giving up on listing on the STAR Market.

[Image source=Reuters Yonhap News]

The STAR Market was launched in 2019 on the Shanghai Stock Exchange as a specialized stock exchange for advanced technology companies. To prevent promising tech companies from moving to overseas markets, it significantly lowered the listing threshold, allowing listings even with losses, similar to the US Nasdaq. Companies could list even without sales or net profits if they possessed 'important and core technologies' or had a corporate value exceeding 4 billion yuan.

However, the government recently reversed this policy and began closely scrutinizing the performance and financial status of companies applying for listing. As a result, two-thirds of the companies that applied for IPOs on the STAR Market (cumulative as of the end of the third quarter) did not receive government approval.

Andrew Collier, Managing Director of Orient Capital Partners, explained, "This is due to the Chinese authorities deciding not to invest national resources in companies or business models whose success is not guaranteed."

In particular, as the standards for technology evaluation and profitability screening were strengthened, a large number of companies began to give up on listing. An official from a listed company said, "We have to explain in detail over hundreds of pages in the IPO application how competitive our company's technology is compared to leading companies in the same industry," adding, "These standards and procedures are a significant entry barrier for emerging tech companies."

Among the companies listed on the STAR Market this year, only one company had no profits or sales below 10 million yuan, a significant decrease compared to eight companies last year.

Last year, funds raised on the STAR Market accounted for more than half of the total market investment, but this year, the proportion has shrunk to 40% ($17.4 billion).

This content was produced with the assistance of AI translation services.