A number of investment bankers have dismissed rumors claiming that Chinese stock exchanges are tightening approval standards for initial public offerings (IPOs) of unprofitable companies.
“Regulatory policies remain the same,” explained a securities firm executive in northern China. “In the past, only a few unprofitable companies applied, and they all aligned with the market segment. Now, with a larger pool of applicants, it’s inevitable that some won’t meet the criteria.”
“I haven’t observed any recent changes in IPO policies,” said a senior sponsorship representative at a brokerage. “However, some unprofitable companies may be rushing to list after seeing others succeed. As application numbers increase, rejecting substandard IPOs might give the impression of stricter scrutiny.”
The Shanghai Stock Exchange’s technology-focused STAR Market has a specific listing pathway, known as the fifth standard system, which does not require companies to be profitable or have revenue. Instead, applicants must show significant market potential, proof of milestones, and approval from central government authorities for their core business or product.
The latest update to this pathway occurred in June, expanding the list of eligible industries to include artificial intelligence, quantum technology, and biomanufacturing—sectors considered emerging or advanced, allowing companies operating at a loss to go public.
The Shenzhen Stock Exchange’s ChiNext Board received approval from the China Securities Regulatory Commission in April to accept IPOs from unprofitable firms that meet specific criteria.
So far, 64 unprofitable companies have listed on the STAR Market, compared to just one on ChiNext, according to data from Wind Information. Several other unprofitable firms, such as GPU designer Enflame Technology and semiconductor foundry CanSemi Technology, are currently preparing for IPOs.
“The growth segment of the STAR Market is designed for unprofitable tech companies,” noted a banker from northern China. “Regulators primarily focus on industry leaders during reviews, while technology assessments for other companies are often handled by advisory committees and industry experts.”
When evaluating IPO candidates, there are no strict universal standards. “Simply meeting the basic listing requirements isn’t enough,” a banker from southern China explained. “Applicants must also undergo evaluation by the authorities responsible for approval, and it’s recommended they communicate with the exchange beforehand if there’s any doubt about eligibility.”