PwC: Mainland capital markets to inject vitality into innovation firms

The Chinese mainland's capital market is expected to be further boosted to inject fresh vitality into innovative enterprises with key and core technologies, fueled by several policies to stimulate economic growth, according to a recent report released by global consultancy PwC.

"The across-the-board registration-based IPO system will further improve issuance efficiency and listing predictability across the domestic stock market, as well as provide a more stable financing environment for enterprises and better support innovative tech companies," said Walter Zhang, assurance markets leader for PwC North China.

Zhang noted the performance of Chinese mainland technology, media and telecommunications (TMT) companies in the capital market picked up in the second half of 2022, driven by the Shanghai Stock Exchange's STAR Market and the Shenzhen bourse's ChiNext board.

The registration-based IPO system was first adopted by the tech-focused STAR Market in 2019 and was broadened to the startup board ChiNext in 2020 and the Beijing Stock Exchange in 2021.Only the main boards of the Shanghai and Shenzhen exchanges have yet to adopt the mechanism.

The China Securities Regulatory Commission, the country's top securities regulator, said in early February that all sections of national securities trading venues and all types of public stock offerings will be covered by the registration-based system.

In addition, the risks facing US-listed Chinese mainland companies of forced delisting have been temporarily mitigated as China-US auditing supervision cooperation yielded good results, which will also promote investors to regain confidence in these companies, the report said.

Looking ahead, the listing of domestic innovative TMT companies in the US is expected to recover in 2023, said Aileen Mo, a PwC China assurance partner.

The number of IPOs by Chinese mainland TMT enterprises significantly increased, from 68 in the first half of 2022 to 124 in the second half, the report said. The total amount of financing for the 124 listings reached about 133.5 billion yuan ($19.5 billion).

The domestic capital market remained the main listing option for Chinese mainland TMT enterprises, with 31 percent and 28 percent of them choosing to be listed on the STAR Market and ChiNext market, respectively, in the second half of last year.

A total of 39 Chinese mainland TMT enterprises chose to list on the STAR Market, and raised about 74.1 billion yuan, accounting for 56 percent of total financing, while there were 35 TMT industry IPOs on ChiNext, that recorded financing of almost 40.2 billion yuan, making up about 30 percent of total financing.

Another 17 Chinese mainland TMT enterprises chose to list on the Beijing Stock Exchange, which received about 3.2 billion yuan, occupying 2 percent of total financing. Additionally, 27 Chinese mainland TMT enterprises, or 22 percent of the total number of IPO-bound enterprises, opted to list in Hong Kong and overseas, netting 11.1 billion yuan, or 8 percent of the total proceeds.

In the second half of 2022, there were a total of 77 IPOs in the technology, hardware and equipment industry, 38 IPOs in the software and service industry, and nine IPOs in the media industry, the report said.

In October, the Hong Kong stock exchange issued a consultation paper on the listing system for special technology companies, which indicated that special technology companies that are still in the stage of initial commercialization or have yet to complete commercialization, will also be allowed to apply to be listed on the bourse.

Wilson Chow, PwC global TMT industry leader, said the move will benefit companies engaged in information technology, advanced hardware, advanced materials, new energy, energy conservation and environmental protection industries, which will inject new vitality into Hong Kong's capital market.

"Listings by Chinese mainland innovative TMT companies in Hong Kong are expected to remain active in 2023," he estimated.