China Unveils Pilot Program to Woo Big Tech Names to Trade Back Home

China is launching a pilot program to entice foreign-listed Chinese tech giants to also trade at home through a new option of share issuance.

The State Council on Friday unveiled the trial program of Chinese depositary receipts (CDRs) for qualified innovative companies to list their shares at the domestic A-share markets.

Companies eligible for the pilot program include those in high-tech or strategic emerging industries, such as the internet, big data, cloud computing, artificial intelligence, software and integrated circuits, high-end equipment manufacturing and biotechnology, according to a document issued by the China Securities Regulatory Commission (CSRC) posted on the State Council’s website late Friday.

The program, modeled after U.S.-listed American Depositary Receipts, will allow overseas-listed Chinese companies to transfer part of their shares to banks and trade the shares on domestic market.

By trading via the new CDRs, innovative companies will be able to speed around barriers that discourage initial public offerings (IPOs) on the A-share market. These barriers include restrictions on weighted voting rights — which tech and family-owned companies favor to keep control — and requirements on profitability.

China is trying to juice up its stock markets with blockbuster names as well as unicorns — rapidly growing startups valued at $1 billion or more that may have yet to turn a profit. It is acting as Hong Kong is moving quickly to change its listing rules to make it easier to attract high tech and other innovative companies.

Under the pilot program, overseas-listed Chinese companies looking at making secondary listings on the mainland market will need a market value of more than 200 billion yuan ($31.8 billion).

For first-time listings, companies can qualify if they are valued at no less than 20 billion yuan and posted revenue of at least 3 billion yuan in the past year.

Fast-growing companies that have developed their own world-class technology and have an advantage in their sector will also be eligible, the document said.

The CSRC will set up a consultation committee made up of industry experts, prominent entrepreneurs and investors to select the first companies to participate in the pilot project.

According to the criteria, seven overseas-listed Chinese companies are currently eligible for a secondary listing back home, including Alibaba Group Holding Ltd., JD.com Inc., Baidu Inc., NetEase, China Mobile, China Telecom and Tencent Holdings Ltd.

Caixin reported earlier that Alibaba and JD.com are expected to become the first companies to make secondary listings on the mainland market through the issue of CDRs as early as June.

Alibaba, which is traded on the New York Stock Exchange, has picked Citic Securities, China’s largest brokerage firm, as one of its sponsors for the CDR issuance, a person close to Alibaba told Caixin.

JD.com, which trades on the Nasdaq Stock Market, has sponsors that include Huajing Securities and China Securities. Huatai United Securities will work as JD.com’s financial adviser, Caixin has learned.

Another big name expected to take part in the CDR program is leading smartphone-maker Xiaomi Inc. Xiaomi, which is preparing to do an IPO in Hong Kong this year, has agreed to list some of its shares on the mainland market through CDRs, sources told Caixin. But a Xiaomi executive said its CDR issuance is likely to come later than Alibaba and JD.com due to its focus on its Hong Kong IPO.

The State Council didn’t say when the trial program will begin. The regulator will issue related implementation rules soon, CSRC spokesperson Chang Depeng said at a news conference on Friday.

Chang said the regulator is making it a priority to revise the IPO rules for listings on the main board and the Nasdaq-like ChiNext market.

A person close to the regulator told Caixin that the revisions aim to loosen restrictions on profit requirements and introduce mixed financial measurements such as revenue and market value, an effort to pave the way “for more unicorns to list on the home market.”

CDRs were a hot topic at this year’s National People’s Congress in Beijing. At a press conference last week, Chinese Premier Li Keqiang called for the regulators to take measures to create favorable conditions for some overseas-listed companies to list on the A-share markets.