Venue for Start-Ups Begins to Jell in China

SHANGHAI -- China unveiled listing rules for its planned experimental Nasdaq-style stock market, edging closer to the creation of a marketplace tasked to nurture innovation-driven start-ups. The country's securities regulator on Tuesday said the rules for initial public offerings on the Growth Enterprise Market will take effect May 1, prompting speculation that the market could be launched as early as June. The opening of the GEM on the Shenzhen Stock Exchange could also be a means for Chinese authorities to test market sentiment and conditions before lifting an unofficial moratorium on IPOs in the broader market, analysts said. "The launch of GEM will provide access to the capital market to the numerous innovative and growth enterprises," the China Securities Regulatory Commission said in a statement, adding it will accept IPO applications after releasing further rules and setting up a reviewing committee. The securities regulator didn't give a time frame for the opening of the new market. China has discussed plans for a listing venue for growth-oriented companies for at least nine years. Last year the central government said it was a priority for 2008 but gave no specific timetable. Venture-capital firms and other early-stage investors have welcomed the plans as a way to spur more investment in small companies that otherwise have trouble obtaining capital in China's economy. Wang Shouren, director general of Shenzhen Venture Capital Association, said the regulators will need "around two months to perfect the system according to the new rules and run it on a trial basis first." However, some investment bankers said bureaucracy and risks associated with start-ups amid the global financial crisis may delay the GEM's opening. Another possibility, some bankers said, is for the cutting-edge market to be launched in late September ahead of the celebration of the 60th anniversary of the Communist Party's assumption of power. The GEM rules released Tuesday require listing aspirants to have a minimum 10 million yuan, or about $1.5 million, of accumulated net profits in the two years prior to a listing. This compares with at least 30 million yuan in the previous three years required for IPO aspirants on the main boards. Despite the lower threshold, the authorities are expected to choose more-mature firms with sound fiscal conditions to be the first batch of GEM-listed firms in order to ensure a successful start of the market, analysts said. As a result, although entrants may have a technology-related background, they may already have met the mainboard earnings requirements. The CSRC's unofficial IPO moratorium since September has created a long queue of well-established firms still waiting for approval on mainboard listings. Analysts estimate there are 300 names on the IPO waiting list that will easily meet the GEM's requirements. —Wynne Wang