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China approved plan for Nasdaq-style technology innovation board

Chinese authority has approved the plan to set up a Nasdaq-style “technology innovation board” in Shanghai aimed at improving technology companies’ ability to raise funds, the official Xinhua news agency reported on Wednesday.

President Xi Jinping presided over a meeting of a commission on deepening reforms during which plans for Shanghai’s “technology innovation board” were approved, the news agency said.

Xi also said a plan to implement a pilot registration-based initial public offering system for the new exchange had been approved, it said.

Xi first announced a plan for the board in November.

The launch of the high-tech board will diversify China’s capital market, push forward market supervision reform, improve financing availability for smaller businesses and promote the country’s technology development and economic transformation, said investment bank China International Capital Corp. (CICC) in a report.

CICC said it expects the new board for the first time to allow pre-profit tech startups and companies with weighted voting rights to list. The new board may also relax current daily trading limits applied on China’s main boards, CICC said.

CICC predicted the first batch of listings on the high-tech board will kick off in the first half this year, with total listing of 150 companies by the end of the year. CICC said in the report that the companies listed on the new board this year are expected to raise between 50 billion yuan and 100 billion yuan ($7.35 billion to $14.70 billion).

Market watchers expect the new board to target companies in sectors supported by the nation’s industrial development strategy, including internet, big data, cloud computing, artificial intelligence, software, integrated circuits, high-end equipment manufacturing, biotech, new materials and new energy.

A Shanghai government official said Tuesday that they have approached a “handful” of potential IPO candidates in preparation for the launch of the board.

No detailed rules regarding the high-tech board have been released. But the market has expected that the new board will relax requirements for candidate companies such as profitability.

Currently companies need to have a three-year track record of profitability to be listed on Shanghai’s main board.

People are also debating whether the new board will allow companies to maintain complicated legal structures called variable-interest entities (VIEs), adopted by many Chinese tech companies such as Alibaba Group Holding Ltd. and Tencent Holdings as they sought to raise funds abroad through share listings.

Chinese startups are mainly listed on the ChiNext board in Shenzhen. But to be listed on the ChiNext, enterprises must show a profit in the two most recent years, with accumulated profits of no less than 10 million yuan.

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