In Depth: China Reopens the Door for Loss-Making Tech Startups to Go Public

For two years, Chinese public markets were closed to companies that had not yet achieved profitability, effectively halting IPO opportunities for deep-tech firms with extensive R&D investments and delayed revenue streams. This status quo shifted in June 2025, when Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), announced during the Lujiazui Forum that the fifth listing standard, which permits pre-profit companies to go public, would be revived through the creation of a new sci-tech growth tier on the Nasdaq-style STAR Market. This enabled loss-making firms, especially those in sectors such as AI and robotics, to again pursue IPOs. By July 13, detailed implementation guidelines were issued, officially reopening the IPO pipeline for such companies, previously shuttered since late 2023 following regulatory tightening to balance the market.[para. 1][para. 2][para. 3][para. 6][para. 7]

The STAR Market was initially unique in China's financial system, focusing on supporting scientific and technological innovation regardless of immediate profitability. This was demonstrated when Suzhou Zelgen Biopharmaceuticals listed under the “U” designation in 2020. Over 50 firms followed, with mixed results—while many remain unprofitable, more than 20 have since become profitable. The revival of IPOs for loss-making entities in 2025 signals a policy shift back to fostering long-cycle innovation, acknowledging the maturation of China’s capital markets since the introduction of the registration-based IPO system in 2019. That regime eliminated administrative pricing and prioritized disclosure, leading to more realistic investor evaluations and reduced speculative “first-day pops.” However, regulators are still maintaining strict quality controls, favoring well-vetted, strategically important enterprises with robust institutional backing over open access.[para. 4][para. 5][para. 6][para. 8][para. 9][para. 10]

Under the new structure, the STAR Growth Tier provides a designated pathway for high-potential firms operating at a loss. Companies listed under this revived fifth standard will display a “U” mark until they turn profitable. The minimum expected valuation threshold is 4 billion yuan ($558 million), with less emphasis on current revenue or profit, making it specifically conducive to deep-tech, biotech, pharma, and similar sectors. Of the 589 firms currently on the STAR Market, the vast majority used profitability-based pathways; only about 20 have listed under the fifth standard in the past, and the number remained stagnant during the two-year pause. Unlike the Shanghai exchange, Shenzhen’s ChiNext board offers a similar but even more stringent listing path, which has yet to see a single loss-making firm succeed.[para. 11][para. 12][para. 13][para. 14][para. 15]

Listing is now controlled through an “invitation-only” system, where potential IPO candidates can only submit if tacitly encouraged by the exchange. Regulators and underwriters engage in pre-filing discussions, prioritizing companies in strategic sectors such as semiconductors and biotech, and requiring backing from senior institutional investors who meet strict qualifications. New rules and a pre-review system aim to protect intellectual property and enable selective disclosure in prospectuses. Highly publicized cases like Moore Threads and MetaX, despite sizable cumulative losses, signal the policy’s selective, high-stakes opening.

China’s IPO landscape has evolved significantly in three decades, moving from rigid, top-down approvals towards a registration-based, investor-led model. The STAR Market epitomizes this shift, with the fifth listing standard offering a high bar for non-profitable but innovative companies. However, market experience has shown that investor risk remains high: as of mid-2025, 22 of 54 companies listed under the “U” designation had fallen below their IPO price, some by over 20%. The new approach aims to balance innovation with robust disclosures and sponsor accountability, betting on developing a mature, future-oriented capital market that can sustain deep-tech innovation.[para. 27][para. 28][para. 29][para. 30][para. 31][para. 32][para. 33][para. 34][para. 35][para. 36][para. 37][para. 38][para. 39][para. 40][para. 41][para. 42][para. 43][para. 44][para. 45][para. 46][para. 47]