China Tightens IPO Requirements for STAR Market Hopefuls

China's securities regulator, the China Securities Regulatory Commission (CSRC), has updated its guidelines for companies aiming to list on the Shanghai Stock Exchange’s STAR Market, which focuses on science and technology innovation. This move is part of an effort to enhance the quality of companies listed amid a significant downturn in the stock market, evidenced by a more than 25% drop in the SSE STAR 50 Index over the past year [para. 1].

The revised guidelines now place a stronger emphasis on research and development (R&D) investment and the commercialization of technologies. These changes align with new directives from the State Council aimed at supporting high-quality development in capital markets and tightening listing controls [para. 2][para. 3]. Initially introduced in March 2020, these guidelines are updated annually, reflecting ongoing adjustments to regulatory standards [para. 4].

Significant changes in the latest update include an increase in the minimum R&D expenditure required over the past three years—from 60 million yuan to 80 million yuan. Additionally, companies must now possess at least seven marketable patents related to their main business activities, up from five previously. The expected compound annual growth rate for revenue has also been raised from 20% to 25% for the three years preceding a listing [para. 5][para. 6].

While these stringent criteria may seem restrictive, there are still opportunities for companies that do not meet all four main metrics. The CSRC provides alternative qualification metrics—five in total—and encourages firms that satisfy at least one of these to apply for a listing. One notable inclusion in this year's alternatives is that companies should have over 50 patents with potential market relevance [para. 7].

As of April's end, there were 571 companies listed on the STAR Market with a combined market capitalization of approximately 5.3 trillion yuan. Despite experiencing a low point in February when the SSE Star 50 Index dropped significantly, there has been some recovery with recent closings showing improvement [para. 8].