In early February, Chinese stocks slumped to a five-low, prompting a promise by the CSRC to stabilize the market. At the time, the regulator did not announce specific measures, but vowed to crack down on ill-intended short selling, attract more investment by long-term capital, and listen to investors' voices. The latter point is key. Retail investors account for a significant amount of trading volume in China and they have become increasingly frustrated with the flagging stock market. Some of this frustration has started to appear on social media, attracting the attention of the Chinese authorities.
Meanwhile, the Shanghai STAR Market has performed fairly well, all things considered. According to the Shanghai Stock Exchange, in 2023, STAR Market companies achieved a total operating revenue of RMB 1.4 trillion, a year-on-year increase of 4.7%. Many of the companies listed on the exchange are aligned with Beijing’s industrial policy goals, especially in the areas of semiconductor fabrication, biomedicine, robotics and machine tools.
Wu said on June 19 that regulators will publish eight new measures to deepen STAR market reform, with a focus on promoting certain “hard technologies.” But he did not provide any details.
It is no secret that China’s leadership has a preference for companies that it sees as useful for developing the country’s advanced manufacturing capabilities. It is less enthusiastic about consumer internet companies and other firms that it does not see as part of the so-called “real economy.” Yet such companies – including several prominent fintechs – have been instrumental to innovation in China’s private sector over the past two decades, have created a large number of jobs, and in some cases increased the country’s global competitiveness.
In theory, the STAR Market, with its focus on technological innovation, would be an ideal place for such companies to list – but not in the absence of high-level government support. While we do not yet know the eight measures the CSRC plans to unveil, it would be wise to state clear support for consumer internet companies, especially providers of financial technology.
Keep in mind that Ant Group had planned a dual listing on both the Hong Kong Stock Exchange and the Shanghai STAR Market before it landed in regulatory crosshairs. Regulatory support was strong for the company right up until the deal was nixed at the eleventh hour. Regulators approved the company’s request to go ahead with the IPO in just four weeks.
It will be hard for the STAR Market to reach its true potential without mega deals of this nature, especially as industrial overcapacity becomes a bigger issue with “hard technologies” like electric vehicles and semiconductors.