STAR Market

A stock exchange is an organized marketplace where shares in companies are bought and sold. Such shares are called stocks: whoever owns one belongs to the company to a tiny extent. The STAR Market is a separate segment of the Shanghai exchange that opened in 2019. Almost only companies from technology and science are allowed to list there, such as manufacturers of computer chips, robotics firms, or drug developers. The name stands for “Science and Technology Innovation Board,” known in Chinese for short as Kechuangban. The Chinese government deliberately created this segment so that young tech companies could raise money within the country.

China’s counter-design to the Nasdaq

Young technology companies often need a great deal of money for years before they turn a profit. Before 2019, this was a problem in China. The established exchanges in Shanghai and Shenzhen required new companies to already show profits over several years. Many Chinese tech companies did not meet this requirement and therefore went to the US instead, above all to the Nasdaq technology exchange in New York.

The Chinese leadership disliked this for two reasons. First, the money of foreign investors flowed past them. Second, Chinese companies listed in the US increasingly got caught between the political fronts of the two countries. The STAR Market was meant to keep these companies in the country.

On top of that there is a strategic motive. China wants to become more independent from the West in semiconductors, artificial intelligence, and battery technology. The STAR Market is one of the tools for this: it channels the savings of Chinese investors specifically into exactly these industries. When economic news reports that Beijing wants to promote the technology sector, this trading venue is often part of it.

Looser listing rules, stricter price limits

The most important difference concerns admission. A company that has never made a profit can still list on the STAR Market. Instead, other metrics are decisive, such as the company’s estimated total value, its revenue, or its research spending. A biotech lab without a finished drug can thus still raise money from investors.

The procedure is also different. In the past, the Chinese securities regulator reviewed every IPO on its merits and decided on the timing itself. On the STAR Market, a registration-based system applies: the exchange mainly checks whether the company has disclosed all required information. Whether the purchase is worthwhile is left for investors to judge themselves. This is closer to the American model.

In exchange, there are other restrictions. During the first five trading days, the price may fluctuate freely; after that, by at most 20 percent per day up or down. On the rest of the Chinese market, this limit is 10 percent. In addition, private individuals may only trade if they have at least 500,000 yuan in their account and can prove two years of stock market experience. The reason: prices fluctuate heavily here, and small investors are not meant to get in without restraint.

Which companies are traded there

The best known is SMIC, China’s largest chipmaker. Its IPO on the STAR Market in the summer of 2020 raised the equivalent of several billion euros and was at the time the largest in China in a decade. Also listed there are manufacturers of chip production equipment, solar companies, battery suppliers, and AI companies.

In the news, the STAR Market usually comes up in two contexts. Either a Chinese tech company is planning an IPO there, or a price index of the market rises or falls sharply because policy toward China has changed. New US export bans on chip technology often move prices there significantly.

A common misconception: the STAR Market is not a separate exchange but a segment within the Shanghai Stock Exchange. It can also be confused with ChiNext in Shenzhen, which likewise admits growth companies but is older and less strictly focused on cutting-edge technology.