ChiNext, a Nasdaq-like board on the Shenzhen Stock Exchange, has debuted new rules that allow companies to participate in an IPO registration system similar to how public advertisements work in the United States.
Eighteen Chinese companies – all small to medium-sized tech companies – took advantage of the new rules and began trading on Monday. By close to the market, their shares averaged more than 200%. A medical device manufacturer called Contec Medical Systems increased more than 1000%, leading the profits.
Previously, companies often had to wait months or even years for meetings with top regulators before they could hope to list on ChiNext. Now, those regulators have delegated much of that responsibility to the Shenzhen Stock Exchange, which significantly reduces waiting time and gives issuers and investors greater control over the price and timing of IPOs.
The stocks that started trading on Monday will continue to trade without limits to how much their prices may fluctuate through the rest of the week. Existing shares can now trade on ChiNext within a 20% band in both directions, doubling what was previously allowed.
“We hope the ChiNext board will better serve the growing innovative and enterprising companies,” Vice President Liu He of China said in a statement Monday read aloud by Yi Huiman, chairman of the China Securities Regulatory Commission, a ceremony for the new misses. He added that the ChiNext reforms could pave the way for further changes to other exchanges. “We hope it will support more quality companies to list on the domestic stock market.”
“As rivalry between China and the US escalates in the technology sector, China needs this reform [on ChiNext] to be successful, “Hao Hong, managing director and head of research at BOCOM International, wrote in a Monday research note. After all, technological leadership will need funding – and a lot of it. “
However, he suggested it was too early to say how successful the reforms would be. Beijing still exercises a lot of control over its markets, and the value of the shares would be overestimated in the first instance.
“Given that the ChiNext reform is a significant part of China’s major competitive strategy with the US, conventional wisdom would like to see good initial performance as an impetus for national confidence,” Hong said. “The [government’s] ‘visible hand’ is likely to intervene, if the situation requires it. “
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