New stock board should aim for flexible listing rules: PwC

BEIJING -- A new stock board Chinese regulators plan to launch will help support innovative and tech-intensive start-ups if it scraps profitability requirements for listed companies, said accounting firm PricewaterhouseCoopers (PwC).

Jim Chen, a PwC partner, said in Beijing on Wednesday that loosening requirements for a company's profitability will set the new board apart from the existing Shanghai and Shenzhen boards.

Though stock markets on the Chinese mainland are already divided, with three boards listing large enterprises, small and medium firms and tech companies, the profitability rules apply to all listed companies.

"China's tech and innovative start-ups have very strong financing needs," Chen said, "and it's time for the capital market to change itself to adapt to meet these needs."

In June, Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC), told a forum in Shanghai that the Shanghai Stock Exchange will launch a "strategic emerging board."

Analysts have since viewed the new board as a potential listing hub for innovative Chinese companies in sectors including IT, advanced manufacturing, the biomedical industry and environmental protection.

China hopes to develop its capital market into a multi-tiered system catering to the financing needs of different companies. Many Chinese firms in technology, media, biomedical sciences and other sectors considered emerging industries by authorities have opted for overseas IPOs over the past decade. This is partly because they cannot meet the listing requirements set for the domestic stock market, chief among them a company's ability to turn profits.

A tumultuous market over the summer put new stock offerings on hold in China's domestic stock market, leaving hundreds of companies waiting in the IPO pipeline.

Instead of using profitability to determine the eligibility for listing, Chen said the new board could consider a number of indicators, including a company's market capitalization, revenue and cash flow when deciding whether a company can offer shares in the country's stock market.

"Companies from these emerging industries usually need more input in research and development and take longer to nurture than their peers in traditional industries," Chen said. "So operating at loss should no longer be an excuse to bar these companies from IPOs at the new board."