The China Securities Regulatory Commission (CSRC) has issued a directive on the reform of the ChiNext market, a stock exchange market designed to help high-growth startups and small-to-medium enterprises (SMEs). The reform encompasses eight key reform measures. These initiatives involve the upgrade across various dimensions, which include board positioning, listing standards, review mechanisms, financing and M&A, investment-side reforms, and full-process supervision, signaling that a new round of deep-seated, comprehensive capital market reforms is moving into a more profound stage.
It is noteworthy that this reform was launched following the issuance of the nine key guidelines for the development and regulation of the country's capital market, serving as a further extension of the ongoing stock market transformation. This context differs significantly from the environment surrounding the establishment of the Science and Technology Innovation Board (STAR Market) and the Beijing Stock Exchange. First, focusing on technology and encouraging innovation has now become the prevailing trend in the market. Second, the overall market environment has undergone a significant shift, marked by a visible rise across various indices. Consequently, the introduction of these reform measures can be viewed as the refinement and expansion of a multi-tiered capital market. The objective is to enhance the synergy between different market segments and foster a more inclusive overall market. For the ChiNext market specifically, this would be recalibrating its positioning to find its proper role in serving the real economy, while simultaneously representing the further maturation of the multi-tiered capital market structure.
The ChiNext board has been established for nearly 17 years, reaching a market capitalization of approximately RMB 17 trillion. Since 2025 in particular, its market value has seen a significant increase; while this growth rate trails behind the STAR Market, it remains notably higher than that of the Shanghai and Shenzhen main boards. Naturally, there are distinct differences between ChiNext and the STAR Market. Before the STAR Market was launched, ChiNext effectively fulfilled a portion of the role now associated with "sci-tech innovation". The recent relaxation of listing rules implies that ChiNext can once again incorporate certain types of tech-focused enterprises, including those that are not yet profitable or those whose investment in technology has reached a specific threshold. However, this is not intended to spark competition with the STAR Market, but rather to ensure better synergy between the two. At present, the STAR Market leans more heavily toward "hard tech" companies, resulting in a somewhat concentrated scope and relatively high price-to-earnings ratios, which suggests that valuations within that sector remain at an elevated level.
The market has in fact focused on three primary areas, namely the introduction of new listing rules, the implementation of local government recommendations, and the relaxation of refinancing regulations. The lowering of the financing threshold for the ChiNext board, which now permits the listing of non-profitable enterprises, aligns its listing standards with those of the STAR Market. This convergence of listing rules is intended to do more than just facilitate the potential transfer of certain "hard tech" firms to the Shenzhen Stock Exchange. It also reflects a strategic move to incorporate "new economic components”, such as new consumption and new services. On one hand, there is a need to integrate "soft tech" research enterprises that rely heavily on digital technology into the stock market. On the other hand, it leverages the ChiNext board's inherently broader scope. As the CSRC noted, the goal is to actively support high-quality, non-profit, innovative enterprises, as well as those in sectors such as new consumption and modern services, to list on the ChiNext board. This creates a complementary layout with the STAR Market. Furthermore, considering that the average price-to-earnings ratio on the STAR Market currently exceeds 200, utilizing the ChiNext board to divert a portion of high-risk capital will help dissipate market bubbles and solidify the foundation for valuations across the board.
In terms of the distinctions between the ChiNext Market and the STAR Market, ChiNext has been operational for over a decade and has reached a relatively mature stage of development. It boasts numerous leading enterprises with market capitalizations exceeding 100 billion yuan, such as CATL and East Money. Its industry distribution is more diversified, with concentrations in new energy, telecommunications, electronics, pharmaceutical biology, and computer sciences; these are sectors closely tied to public livelihoods and industrial upgrading. Compared to the STAR Market, ChiNext exhibits lower volatility and more stable earnings, making its risk profile relatively lower. Although the STAR Market has seen over 600 companies list in its shorter lifespan, it maintains relatively high market valuations and significant volatility, which naturally entails higher risk. While the STAR Market has become a market favorite, advancing reforms within ChiNext remains a vital component of building a multi-tiered capital market. Such efforts refine overall market functions, allow the stock market to better leverage its inherent advantages, and provide more comprehensive service coverage for enterprises. From a positioning perspective, a multi-tiered framework consisting of the “Beijing Stock Exchange < STAR Market < ChiNext < Shanghai and Shenzhen Main Boards” has essentially taken shape. Moving forward, the transitions, linkages, and interactions between these different boards will become increasingly integrated.
Since the tightening of IPOs following the stock market volatility of 2023, the listing of service-oriented enterprises in China has essentially been suspended. This has led a significant number of innovative companies, including restaurant chains and similar businesses, to seek listings on the Hong Kong Stock Exchange. This round of reform on the ChiNext Market is expected to improve listing and financing conditions for "new economic components”, filling the financing gap for the development of companies in sectors like new consumption and new services that possess technological and innovative characteristics. Naturally, this also signifies that the competitive landscape between the Shenzhen Stock Exchange and the Hong Kong Stock Exchange has ascended to a new level. In effect, the ChiNext reform will establish a new, tight-knit relationship of competition and complementarity among the three major exchanges in Shanghai, Shenzhen, and Hong Kong.
The relaxation of refinancing rules on the ChiNext Market, including measures such as shelf offerings and the linkage between equity and debt, not only facilitates corporate investment and M&A activity but also enhances regulatory efficiency and reduces costs for enterprises. Furthermore, it signifies a bridge being built between the stock and bond markets, helping to enrich the product offerings and financial service scope of the Shenzhen Stock Exchange. This represents a critical component of the financial service support and upgrades necessitated by Shenzhen’s development as a technology and innovation hub. These developments benefit not only the growth of the ChiNext Market but also strengthen the Shenzhen Stock Exchange’s competitive position against the Shanghai and Hong Kong exchanges. More importantly, they constitute a primary element in building the financial service system associated with Shenzhen’s innovation center. Naturally, a lower frequency of regulatory intervention does not imply a reduction in oversight intensity. Instead, the normalization of supervision indicates a strategic shift from gatekeeping at the entry point to monitoring daily operations, i.e., a shift that is beneficial for both investors and the long-term sustainability of enterprises. Consequently, these measures are expected to be well-received by both businesses and investors alike.
In the current ChiNext reforms, the introduction of local government involvement is particularly noteworthy. The new guidelines mention actively leveraging the role of local governments to help improve the efficiency of review and registration. By capitalizing on local governments' deep understanding of enterprises within their jurisdictions, a pilot program will be launched. Under this program, municipal governments at or above the prefecture level, as well as provincial governments (collectively referred to as "local governments"), will submit information on enterprises planning to list on ChiNext to the CSRC and the Shenzhen Stock Exchange. This pilot applies to companies that have applied for IPO counseling and intend to file under the third or fourth sets of ChiNext listing criteria. This development marks a clear departure from previous approaches that sought to limit local government intervention in the financial system. Of course, the CSRC emphasizes that the submission of information by local governments does not influence final review decisions. However, this will inevitably increase the influence of local authorities over the capital market. On one hand, submissions and recommendations from local governments inherently provide enterprises with a form of implicit credit enhancement. While this is not equivalent to a local guarantee, being recommended by the government is naturally perceived by market investors as a credit endorsement from official authorities. On the other hand, since local governments are providing this information, they also bear supervisory responsibility for listed or prospective companies, not only regarding the quality of the information provided but also the quality of the enterprises themselves. Consequently, they must also share the associated risks, effectively increasing the territorial responsibility of local authorities regarding capital market fluctuations and risks.
According to researchers at ANBOUND, allowing local governments to submit enterprise information is a reflection of the "fiscal-financial integration" trend previously noted by ANBOUND’s founder Kung Chan. The local governments have now continuously deepened the construction of investment mechanisms in the technology and economic sectors through government guidance funds. Not only does government debt issuance require coordination with the capital markets, but the enterprises invested in by these government funds are also inseparable from the stock and bond markets. For listed companies, the role of the local government is no longer a relatively simple matter of administrative intervention. Indeed, it has increasingly taken on the character of a shareholder. Within this context, driven by considerations of regional economics and revenue, local governments have both the motivation and the need to exert influence over the capital market. Correspondingly, they will also need to assume the responsibilities and obligations of a shareholder or de facto controller regarding the performance and valuation of the relevant enterprises.
The introduction of a "recommendation" role for local governments within the ChiNext reform, which provides an exit and trading platform for various government-led fund investment projects, is a reflection of the current trend toward "fiscal entry into the market" and the capitalization of "state-owned assets". Naturally, the deep involvement of local governments in the capital market is a double-edged sword. If fair trading can be conducted in accordance with unified market rules and standards, it will not be detrimental to maintaining market stability or expanding market boundaries. However, if there is excessive interference with financial regulation, it could produce a crowding-out effect on private listed companies, which would be unfavorable to the market’s innovative development. Under these circumstances, financial regulation must inevitably be further strengthened to prevent local governments from profiting through their administrative power within the capital market.
Similar to the previous implementation of the registration-based system, the greatest concern for investors regarding the ChiNext reform remains the quality control of listed companies. This involves not only the penalties for IPO fraud and related misconduct but also supply-side issues such as the pace of IPOs and refinancing. Following the release of the nine key guidelines mentioned earlier, penalties for corporate fraud have been significantly strengthened. Combined with measures to increase dividends and share buybacks, the capital market is currently in a recovery phase for investors. This serves as the foundation for improved market sentiment and market value growth. Therefore, for the ChiNext reform, enhancing inclusivity, boosting market vitality, and perfecting the multi-level capital market system must not come at the expense of company quality, nor should investors be forced to pay the price for regulatory deficiencies. This is the fundamental basis for the long-term stability and prosperity of China’s capital market.
Final analysis conclusion:
The ChiNext reform policies, which aimed at increasing market inclusivity and creating a more comprehensive, complementary structure alongside the STAR Market and the Main Board, are beneficial for the refinement and development of China’s multi-tiered capital market. However, while introducing local government recommendation role and improving regulatory efficiency, there must be no relaxation of oversight, and the quality control of listed companies must not be sacrificed. Otherwise, a market suffering from long-term capital erosion will find it difficult to achieve sustained prosperity.
______________
Dr. Wei Hongxu is a Senior Economist of China Macro-Economy Research Center at ANBOUND, an independent think tank.
