China weighs new high-tech stock venue in battle with Hong Kong, people say

Talks are the latest example of Chinese authorities looking to boost mainland market

PUBLISHED : Tuesday, 05 June, 2018, 6:02pm
UPDATED : Tuesday, 05 June, 2018, 6:02pm

China is expanding efforts to keep its most promising companies from going public in Hong Kong or the US, with officials studying a new trading venue in Shanghai that would have lower thresholds for biotechnology and high-tech firms, people with knowledge of the matter said.

Government entities including the China Securities Regulatory Commission and Ministry of Science and Technology are studying the proposal, said the people, who asked not to be named discussing private information. The new market, which might waive earnings and revenue requirements, would operate at the Shanghai Stock Exchange, the people said.

The talks are the latest example of Chinese authorities looking at ways to boost the domestic market, which has in recent years seen businesses worth more than US$1 trillion head to overseas exchanges. Regulators are drawing up rules for Chinese depositary receipts that would allow companies such as Alibaba Group Holding Ltd. to list shares onshore, and efforts are underway to encourage home-grown large tech firms, known as unicorns, to debut in Shanghai or Shenzhen.

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China’s biotech and high-tech venue could open as early as next year, according to the people. The market may have minimum investor thresholds to prevent some individuals from investing in risky start-ups, they said. Officials are concerned that new rules in Hong Kong that dropped revenue and profit requirements for biotech companies could lure away such businesses.

Biotech firms without a track record of revenue or profits can list in Hong Kong under rules that took effect in April. The change is part of a broader effort by Hong Kong Exchanges & Clearing Ltd. to attract technology-focused firms and compete head-to-head with US markets for initial public offerings. Goldman Sachs Inc.-backed Ascletis Pharma Inc. was the first biotech company to apply for a listing under the new regime.

China spent nearly $113 billion on medicine in 2017, and the number is expected to be as high as $175 billion by 2022, according to Iqvia Holdings Inc., a research firm. The government has removed regulatory barriers to biotech innovation and highlighted the sector in its ‘Made in China 2025’ blueprint.

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Investors and entrepreneurs have rushed into the field in recent years and many start-ups are planning to take advantage of Hong Kong’s rule changes. In the US, Nasdaq-listed Chinese biotech firms have surged over the past year: Hutchison China MediTech Ltd. had risen about 38 per cent as of June 4, BeiGene Ltd. gained nearly 400 per cent and Zai Lab Ltd. increased more than 32 per cent since its IPO in 2017.

Hong Kong investors have also shown an appetite for promising biotech assets from the mainland. Nanjing-based Genscript Biotech Corp. has jumped 688 per cent in the past year on the potential of an experimental cancer therapy that engineers a patient’s immune cells to fight tumours.