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China unveils new guidelines on new tech board

Posted by: Mathilde Veyrat
Category: Tax and Regulations in China
science and technology innovation board
On January 30, 2019, the China Securities Regulatory Commission released multiple important notices on their website regarding the science and technology innovation board.
Completely different from the current A-share market, these groundbreaking policies may trigger huge changes in China’s capital market.
Proposals concerning management and regulation is in an early stage of development and consultation.

Here we provided an overview of the newly released documents regarding the implementation of science and technology innovation board at the Shanghai Stock Exchange.

Read more about China’s upcoming regulations: China’s IIT Law Withholding Measures for 2019 Released

There are quite a few “board” in China’s stock market like Main Board, SME board, NEEQ (National Equities Exchange and Quotations) board, etc. In the near future, a new board —— science and technology innovation board will soon be introduced into Shanghai Stock Exchange.
As a specially-made sector offering support and more financing opportunities for small and medium-sized technological and innovative enterprises, it is a product of Shanghai’s construction of a multi-level capital market as well.

Technological and innovative enterprises include :

State-level and provincial-level high-tech enterprises, “Little giant” businesses, or high-tech enterprises certified by the government authority.

Here outlines all you need to know about the soon-to-be science and technology innovation board.

Registration Process

The guideline specifies the audit contents and procedures under the registration system, which will be carried out in two steps:
Step 1:  The Shanghai bourse conducts a comprehensive review of companies’ IPOs, focusing on whether the information disclosure requirements are implemented; The process will take no longer than 6 months.
Step 2:  After the examination and verification, the examination opinions and relevant documents will be submitted to the CSRC, who will be in charge of the registration of new shares issued at the new board.As for the reviewing time, according to the regulations, the CSRC must make a decision on whether to grant registration within 20 working days. Besides, aside from the time spent in reply of intermediary agencies, on-site verification and suspension of examination, the time taken shall not exceed 3 months.

Five different points between registration system and checking system you need to pay attention to:
1. Under the registration system, the securities issuance examination institutions only conduct formal examination of the registration documents but do not make substantive judgment.
2. Different focus on issuing terms (elaborated further below).
3. Higher requirements on information disclosure of listed companies in science and technology innovation board.
4. Different auditing procedures. The Shanghai stock exchange shall first conduct the auditing and review, and then the CSRC shall register.
5. The new board further strengthens legal responsibilities and accountability of the company.

Listing standards

In addition, the guideline greatly relaxes the listing requirements.
Shanghai stock exchange launched 5 sets of listing standards, emphasizing the index system with market value as the core and the operating conditions of financial indicators. The higher is the certainty of enterprise operation and the better are the operating results, the lower are the requirements on market value.
Enterprises running under deficit and unprofitable are allowed to go to the public. In other words, there will be no more restrictions on the proportion of intangible assets. Before the new regulation, companies had to report net profits of at least 30 million yuan ($4.4 million) for three consecutive budget years to qualify for the main board of the A-share market.

Priority to support six major industries

The new regulation is aimed at:
  • Offering key support to high and new technology industry and strategic emerging industries including: information technology, high-end equipment, new materials, new energy, energy conservation, environmental protection and biomedicine;
  • Promoting depth fusion with the Internet, cloud computing and big data, artificial intelligence and manufacturing;
  • Leading high-end consumption and the change of quality, efficiency and momentum.

Issuing terms

1.  Enterprises shall meet the issuance conditions stipulated by the CSRC;
2.  The total share capital after listing shall not be less than RMB 30 million yuan;
3.  In the case of an initial public offering, more than 25% of the total shares of the company shall be issued; If the total share capital of the company exceeds RMB 400 million, the proportion shall be more than 10%;
4. The market value and financial indicators meet the standards specified in these rules;
5.  Other listing conditions stipulated by the CSRC.

Transaction system

The new board will set a threshold of 500,000 yuan, requiring investors to have investment experience of 24 months.
Daily limit within 5 trading days of a new share will be taken off. The daily price fluctuation limit can be set on the sixth day after the listed companies going into the public, with a range of 20%. The number of single declaration is adjusted to 200 shares.

Delisting system

The strictest delisting system in history will be implemented. Companies that don’t meet the standards for trading volume, share prices or sustained operational ability will be delisted.
Suspension and restoration of listing will no longer be provided. Direct delisting will be conducted when conditions are met.

The Future Impact

Says one insider: “the release of the guideline means the new tech board now officially moves in a new stage. Qualified high-tech enterprises will also gear up to make its foray in IPO, reflecting on A-share market.”
As Fang Xinghai, vice-chairman of the CSRC, have said in WEF’s annual meeting in Davos not long ago, “the establishment of the board can accelerate the pace of being listed and financing of high-tech companies, thus promoting China’s future technology and economy to steadily move forward.”
         
Regulators will solicit public opinion on the rules for possible amendment until Feb 28.
The first companies would submit an IPO application at the new tech board in early March at the earliest.       
 
It is estimated that there will be around 150 companies listed on the new tech board in 2019, with a total financing amount reaching up to 50-100 billion yuan.

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Author: Mathilde Veyrat